Teufel v. American ( 2017 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
DENNIS E. TEUFEL, Plaintiff/Appellant/Cross-Appellee,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a foreign
corporation; KERRY V. HANSON, an Arizona resident,
Defendants/Appellees/Cross-Appellants.
No. 1 CA-CV 15-0736
FILED 5-9-2017
Appeal from the Superior Court in Maricopa County
No. CV2014-005493
The Honorable Karen A. Mullins, Judge
AFFIRMED IN PART, VACATED IN PART
COUNSEL
Raymond Greer & McCarthy, PC, Scottsdale
By Michael J. Raymond
The Guy Law Firm, PLLC, Scottsdale
By Steven S. Guy
Co-Counsel for Plaintiff/Appellant/Cross-Appellee
Tyson & Mendes, LLP, Phoenix
By Lynn M. Allen
Counsel for Defendant/Appellees/Cross-Appellants
TEUFEL v. AMERICAN, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Peter B. Swann delivered the decision of the Court, in
which Judge Kent E. Cattani and Judge Donn Kessler joined.
S W A N N, Judge:
¶1 This case concerns an insurer’s duty, under two homeowner’s
insurance policies, to defend its insured in a construction-defect action.
With respect to the first policy, we hold that the insurer owed no duty as a
matter of law. The policy’s terms limit its coverage to damage experienced
during the policy period, and the damage is alleged to have occurred after
the policy expired. With respect to the second policy, we hold that the duty
to defend was not excused as a matter of law under exclusions for liability
“under any contract” and liability “arising out of business pursuits.” The
allegedly defective construction is unrelated to any contract between the
insured and the party suing the insured, and the record does not compel
the conclusion that the insured was engaged in a business pursuit when he
engaged in the conduct at issue. We therefore affirm the entry of summary
judgment for the insurer with respect to the first policy, but we reverse the
entry of summary judgment for the insurer with respect to the second
policy.
FACTS AND PROCEDURAL HISTORY
¶2 Dennis Teufel bought an undeveloped lot in Paradise Valley
(“the Longlook Property”) and decided to construct a residence on it.
Before construction began, he purchased a homeowner’s insurance policy
for the property (“the Longlook Policy”) from American Family Mutual
Insurance Company (“American”). Through successive renewals, the
Longlook Policy remained in place until Teufel sold the completed
residence to Cetotor, Inc., in May 2011. Teufel later purchased a different
homeowner’s insurance policy from American (“the 82nd Place Policy”)
that remained in effect from January 2012 through January 2013. Both
policies included personal-liability coverage and defense provisions.
¶3 Cetotor brought an action against Teufel in November 2012,
alleging contract, negligence, and fraud-based claims to the effect that the
Longlook Property’s hillside was improperly excavated during
construction. Teufel requested that American defend and indemnify him
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Decision of the Court
under the personal-liability provisions of the Longlook Policy and the 82nd
Place Policy. American denied coverage with respect to both indemnity
and defense.
¶4 Teufel brought a civil action against American, seeking
damages and a declaration that American had a duty to defend him against
Cetotor. He moved for summary judgment on the declaratory-relief claim,
and American cross-moved for summary judgment, arguing that coverage
was not triggered under the Longlook Policy and was excluded under
several provisions of the 82nd Place Policy. The superior court denied
Teufel’s motion and granted American’s, concluding that the Longlook
Policy did not provide coverage and that the 82nd Place Policy excluded
coverage under its “contractual liability” exclusion.
¶5 Teufel appeals the judgment, and American cross-appeals the
court’s determination that the 82nd Place Policy’s “business pursuits”
exclusion did not apply.
DISCUSSION
¶6 We review summary judgment rulings, and the interpretation
of insurance policies, de novo. Double AA Builders, Ltd. v. Preferred
Contractors Ins. Co., 241 Ariz. 304, 305, ¶ 6 (App. 2016). We interpret policy
terms consistent with their plain and ordinary meaning, from the
standpoint of a person without training in law or the insurance business.
Colo. Casualty Ins. Co. v. Safety Control Co., 230 Ariz. 560, 568,
¶ 28 (App. 2012); see also Double AA Builders, 241 Ariz. at 306, ¶ 11 (“Our
opinions concerning coverage do not define the scope of coverage in all
cases — they merely interpret the way in which parties choose to allocate
risk in private agreements.”). In addition, we construe ambiguities in
policy exclusions in favor of the insured. Brenner v. Aetna Ins. Co., 8 Ariz.
App. 272, 276 (1968).
¶7 We determine whether a duty to defend is triggered first by
examining the allegations of the complaint against the insured and then, if
those allegations facially bring the case within the scope of the policy, by
examining whether other facts plainly take the case outside of the coverage.
Kepner v. W. Fire Ins. Co., 109 Ariz. 329, 331 (1973); see also W. Cas. & Sur. Co.
v. Hays, 162 Ariz. 61, 62 (App. 1989). A party is entitled to summary
judgment only when “there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of law.” Ariz. R.
Civ. P. 56(a).
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TEUFEL v. AMERICAN, et al.
Decision of the Court
I. THE SUPERIOR COURT CORRECTLY ENTERED SUMMARY
JUDGMENT FOR AMERICAN WITH RESPECT TO THE
LONGLOOK POLICY.
¶8 We begin with the Longlook Policy. That policy provides that
American must defend Teufel in any action brought against him “for
damages because of bodily injury or property damage caused by an
occurrence to which this policy applies.” The policy defines “occurrence”
and “property damage” as follows:
Occurrence means an accident, including exposure to
conditions, which results during the policy period, in:
bodily injury; or
property damage.
Continuous or repeated exposure to substantially the same
general harmful conditions is considered to be one
occurrence.
....
Property Damage means physical damage to or destruction of
tangible property, including loss of use of this property.
(Emphasis added.)
¶9 By its terms, the policy limits American’s duty to defend to
actions brought against Teufel for physical damage to property resulting
during the policy period. See Century Mut. Ins. Co. v. S. Ariz. Aviation, Inc.,
8 Ariz. App. 384, 385 (1968) (“The general rule is that the time of the
occurrence of an accident within the meaning of an indemnity policy is not
the time the wrongful act was committed, but the time when the
complaining party was actually damaged.” (citation omitted)); see also
Outdoor World v. Cont’l Cas. Co., 122 Ariz. 292, 295 (App. 1979). And the
parties agree that the policy, consistent with United States Fidelity &
Guaranty Corp. v. Advance Roofing & Supply Co., Inc., 163 Ariz. 476, 482
(1989), and Lennar Corp. v. Auto-Owners Insurance Co., 214 Ariz. 255, 262,
¶ 17 (App. 2007), does not cover defective workmanship standing alone.
¶10 Teufel contends that the Longlook Property was
“immediate[ly] damage[d]” by the faulty excavation, which took place
during the policy period, because that work destabilized the property’s
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TEUFEL v. AMERICAN, et al.
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hillside. Cetotor’s amended complaint, read liberally, alleged policy-period
destabilization because it described rockslides that occurred during
Teufel’s ownership. But those allegations related only to Cetotor’s claims
of fraud in the property’s sale. Cetotor did not allege that the policy-period
rockslides caused any physical damage, either abrupt or incremental,
during the policy period. At most, the allegations of policy-period
rockslides support an inference of faulty workmanship — which, by itself,
is not covered under the policy. According to Cetotor’s amended
complaint, the faulty workmanship did not result in property damage until
after the policy’s cancellation. Specifically, Cetotor alleged that a rockslide
deposited rocks against the residence in November 2011 and August 2012.1
Because Cetotor’s physical-damages claims were limited to post-policy-
period events, the action did not implicate American’s duty to defend
under the Longlook Policy. The superior court correctly granted summary
judgment for American on that claim.2
II. THE SUPERIOR COURT ERRED BY ENTERING SUMMARY
JUDGMENT FOR AMERICAN WITH RESPECT TO THE 82ND
PLACE POLICY.
¶11 We turn next to the 82nd Place Policy, which contains the
same duty-to-defend provisions as the Longlook Policy. Because the 82nd
Place Policy was in place at the time of the final rockslide and the damage
it caused, American’s duty to defend Teufel was triggered. The question is
whether a policy exclusion relieved American of that duty. Two policy
exclusions are at issue in this appeal: a “contractual liability” exclusion and
a “business pursuits” exclusion.
1 Cetotor alleged that the August 2012 rockslide damaged the
residence’s HVAC units. Cetotor further alleged that the residence’s bay
windows, exterior stucco, and interior flooring were damaged. Though
Cetotor failed to specify when that additional damage occurred, we
conclude that the allegation must pertain to post-policy-period events,
because it was carried into the amended complaint verbatim from the
original complaint, which made no mention of the policy-period rockslides.
And Teufel makes no argument to the contrary.
2 Teufel asserts that evidence showed policy-period damages. But
here, the analysis begins and ends with the allegations of Cetotor’s
amended complaint, because the duty to defend extends to claims actually
made, not claims that might have been made. See Kepner, 109 Ariz. at 331.
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TEUFEL v. AMERICAN, et al.
Decision of the Court
A. The “Contractual Liability” Exclusion Did Not Entitle
American to Summary Judgment.
¶12 The superior court concluded that coverage was excluded
under the following “contractual liability” provision:
Coverage D – Personal Liability does not apply to:
1. Contractual Liability. We will not cover personal
liability under any contract or agreement.
Teufel contends that the “contractual liability” exclusion does not apply
because Cetotor asserted tort as well as contract claims. The superior court
reasoned that Teufel’s liability “is necessarily ‘under a contract’” because
he “would have no personal liability in this case to Cetotor absent the
underlying real estate purchase contract between [Teufel] and Cetotor,”
and “[t]he court sees no significance between the term ‘under’ as opposed
to the phrase ‘arising out of.’”
¶13 We disagree with the superior court’s conclusion. The alleged
negligence — i.e., Teufel’s improper excavation during construction — was
entirely independent of the later real estate transaction. The purchase
contract placed the parties within tortious striking range of one another, but
it was otherwise unrelated to liability. We need not decide whether there
is a meaningful distinction between “liability under any contract” and
“liability arising out of any contract” because here, the tort claims neither
occurred under the purchase contract nor arose out of it. The mere fact that
the parties had a contract between them is not enough to trigger the
“contractual liability” exclusion. To the extent that the extra-jurisdictional
case law cited by American suggests otherwise, we reject that suggestion.
The “contractual liability” exclusion did not remove American’s duty to
defend Teufel against Cetotor’s claims.3 See W. Cas. & Sur. Co., 130 Ariz. at
79–80 (“[I]f any claim alleged in the complaint is within the policy’s
coverage, the insurer has a duty to defend the entire suit, because it is
impossible to determine the basis upon which the plaintiff will recover (if
any) until the action is completed.”).
3 We do not address the viability of Cetotor’s claims under Sullivan v.
Pulte Home Corp., 237 Ariz. 547 (App. 2015). But even if those claims were
subject to dismissal, the duty to defend still exists.
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TEUFEL v. AMERICAN, et al.
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B. The “Business Pursuits” Exclusion Did Not Entitle American
to Summary Judgment.
¶14 We next consider American’s argument on cross-appeal that
the superior court erred by concluding that American was not entitled to
summary judgment based on the 82nd Place Policy’s “business pursuits”
exclusion. That exclusion provides:
4. Business. We will not cover bodily injury or property
damage arising out of business pursuits or the rental or
holding for rental of any part of any premises[, with
exceptions not applicable here].
The policy defines “business” as “any profit motivated full or part-time
employment, trade, profession or occupation and including the use of any
part of any premises for such purposes.” Typically, an activity will qualify
as a “business pursuit” if it is continuous or regular, and is motivated by
profit. Indus. Indem. Co. v. Goettl, 138 Ariz. 315, 319 (App. 1983); see also 9A
Steven Plitt et al., Couch on Insurance § 128:15 (3d ed. Supp. Dec. 2016)
[hereinafter “Couch”]. An activity may be continuous and regular even if it
is part-time, Couch § 128:15, or temporary, Farmers Insurance Co. of Arizona
v. Wiechnick, 166 Ariz. 266, 268 (App. 1990). And it may be motivated by
profit even if profit is not the insured’s immediate or even primary
consideration. Couch § 128:15. For example, “[t]he business pursuit
exclusion has . . . been held to preclude coverage for residential developers,
in their capacities as owners and developers of residential projects, in
actions brought against them by condominium or homeowner
associations.” Id. § 128:16.
¶15 As an initial matter, we hold that the superior court erred by
focusing its inquiry on whether Teufel was engaged in a business pursuit
“during the course of the 82nd Place Policy.” The “business pursuits”
exclusion is not temporally limited. By its terms, the exclusion applies to
otherwise-covered property damage arising out of a business pursuit
without regard to when the insured engaged in the pursuit. See Indus.
Indem. Co., 138 Ariz. at 318 (construing similar exclusion). We therefore
examine not whether Teufel was engaged in a business pursuit during the
82nd Place Policy’s effective period, but whether he was engaged in a
business pursuit when he constructed and sold the residence on the
Longlook Property.
¶16 We conclude that Cetotor’s amended complaint did not
trigger the “business pursuits” exclusion with sufficient certainty to defeat
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the duty to defend. To be sure, Cetotor alleged that Teufel was a “builder-
vendor,” and “builder-vendor” activities necessarily constitute “business
pursuits” because a “builder-vendor” is “one who is engaged in the
business of building, so that the sale is of a commercial nature, rather than
a casual or personal one” (even if it is the person’s first such sale or if the
residence was initially constructed for the person’s own use). Dillig v.
Fisher, 142 Ariz. 47, 49–50 (App. 1984). But based on the amended
complaint, the “builder-vendor” characterization was not a prerequisite to
liability on all claims. The “builder-vendor” allegations were part of
Cetotor’s negligence claim: Cetotor alleged that Teufel was a “builder-
vendor” and that “[a]s a builder-vendor, Tefuel [sic] negligently performed
or negligently supervised the hillside grading and slope cut.” Negligence,
however, does not require that the defendant qualify as a “builder-vendor.”
See Gipson v. Kasey, 214 Ariz. 141, 143, ¶ 9 (2007) (holding that a negligence
claim requires proof of a duty to conform to a standard of care, breach of
that standard, causal connection between defendant’s conduct and the
resulting injury, and actual damages).
¶17 Further, while evidentiary proceedings may ultimately defeat
coverage under the “business pursuits” exclusion, the facts presented in the
summary-judgment proceedings were disputed, and therefore could not
conclusively support the exclusion as a matter of law. Teufel presented
evidence that he “frequently dabbled in real estate by acquiring vacant lots,
purchasing and selling personal homes and contracting to build and later
selling personal homes.” Teufel further asserted that he “invested money
from time to time in a loose ‘partnership’ with a custom home builder,
Jamie Vaughn of Carmel Homes Inc.,” and “for many years . . . also
contracted with Vaughn/Carmel homes for the construction of custom
homes intended to be occupied by Mr. Teufel.” He provided a list of seven
properties (including the Longlook Property) that he had insured under
American homeowner’s insurance policies, with the intent of owner
occupancy, between 1990 and 2007. He also listed four rental properties
that he had insured under American business policies from 1999 to 2006.
With respect to the Longlook Property, Teufel asserted that he decided to
develop the property when he was newly married, and that he originally
intended to occupy the completed residence but changed his mind during
the construction process because of changed circumstances.
¶18 Based on the foregoing, a factfinder could well conclude at
trial that Teufel qualified as a “builder-vendor,” or that his development of
the Longlook Property otherwise constituted a “business pursuit.” But the
facts do not compel that conclusion on this limited record. Though Teufel
had a history of building and selling his homes, a factfinder reasonably
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Decision of the Court
could conclude that the pattern was insufficient to show that Teufel was
engaged in a “business” activity when he constructed the personal
residence on the Longlook Property. American was not entitled to
summary judgment with respect to the “business pursuits” exclusion.
CONCLUSION
¶19 We affirm the superior court’s entry of summary judgment
for American with respect to the Longlook Policy, but vacate the entry of
summary judgment for American with respect to the 82nd Place Policy. We
hold that the 82nd Place Policy provides coverage, and that neither the
“contractual liability” exclusion nor the “business pursuits” exclusion were
triggered on this record as a matter of law. In our discretion, we deny both
parties’ requests for attorney’s fees under A.R.S. § 12-341.01.
AMY M. WOOD • Clerk of the Court
FILED: AA
9