Hastings Mut. Ins. Co. v. Village Communities Real Estate, Inc.

[Cite as Hastings Mut. Ins. Co. v. Village Communities Real Estate, Inc., 2014-Ohio-2916.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Hastings Mutual Insurance Company, :
Plaintiff-Appellee, : No. 14AP-35
(C.P.C. No. 12-CV-1950)
v. :
(REGULAR CALENDAR)
Village Communities Real Estate, Inc., et al., :
Defendants-Appellants. :
D E C I S I O N
Rendered on June 30, 2014
Stark & Knoll Co., L.P.A., and Christopher A. Tipping, for
appellee.
Thompson Hine LLP, Gabe J. Roehrenbeck, Scott A.
Campbell, and Todd M. Seaman, for appellants.
APPEAL from the Franklin County Court of Common Pleas
LUPER SCHUSTER, J.
{¶ 1} Defendants-appellants, Village Communities Real Estate, Inc., Traditions at
Polaris, LLC, and Village Communities Corporation, appeal from a decision and entry of
the Franklin County Court of Common Pleas granting the motion for summary judgment
of plaintiff-appellee, Hastings Mutual Insurance Company. Because the trial court did not
err in concluding all of the claims occurred and were known prior to the policy dates and
are therefore excluded from coverage, we affirm.
I. Facts and Procedural History
{¶ 2} This action stems from appellee's complaint seeking a declaratory judgment
that it has no duty to defend or indemnify appellants in lawsuits (the "underlying
complaints") filed against appellants by two homeowners, Karen Macrina and Barb
Gifford. Because the underlying complaints are nearly identical, the trial court
No. 14AP-35 2
consolidated them into a single action. The underlying complaints assert claims for
breach of express written construction sales contract, negligent misrepresentation,
misrepresentation and civil fraud/concealment, negligent construction, breach of express
warranty, and violations of Ohio's Consumer Sales Practices Act ("CSPA"). Both Gifford
and Macrina assert they separately entered into a real estate construction and sale
contract with Traditions at Polaris, LLC in 2006 for the construction, purchase and sale of
a home, and Village Communities provided the homeowners' limited warranty for each
home. Subsequent to taking occupancy, both Gifford and Macrina discovered water
infiltration and related problems in the basements of their homes and timely reported
those issues to appellants. Gifford's and Macrina's homes are side-by-side and share a
common foundation.
{¶ 3} After Gifford and Macrina purchased their homes, Village Communities
Real Estate, Inc. obtained two liability insurance policies from appellee. The first, the
Hastings Contractors Package Policy of Insurance number CPP 9792143 (the "Contractors
Policy") was effective March 1, 2010 to March 1, 2011. The second, the Commercial
Umbrella Policy of Insurance number ULC 9774539 (the "Umbrella Policy") was effective
March 1, 2010 and cancelled on October 1, 2010. Both policies provide coverage for
liability arising out of bodily injury, property damage, and personal and advertising
injury. Both policies specifically exclude from coverage damages the insured is obligated
to pay as a result of liability assumed in a contract or agreement. Additionally, both
policies provide appellee has a duty to defend and indemnify the insured only if the
property damage alleged is caused by an "occurrence" within the coverage territory during
the policy period and if no insured or authorized employee knew the damage occurred
prior to the policy period. Both policies also exclude from coverage any property damage
stemming from incorrect performance of the insured's work on the property.
{¶ 4} After Gifford and Macrina instituted the underlying complaints, appellants
provided notice to appellee of suit. On November 23, 2010, appellee assumed a defense of
the underlying complaints and issued reservation of rights letters to Village Communities
Real Estate, Inc., its named insured, indicating appellee was reserving all rights and policy
defenses available to it and indicating the subject insurance coverage was or may be
excluded for various reasons.
No. 14AP-35 3
{¶ 5} On February 14, 2012, appellee filed its complaint seeking a declaratory
judgment asserting the claims raised in the underlying complaints either do not give rise
to coverage or are otherwise excluded from coverage. On September 27, 2012, appellee
moved for summary judgment on all claims raised in its declaratory judgment complaint.
Appellants responded with a memorandum in opposition on October 29, 2012, and
appellee filed a reply brief thereafter.
{¶ 6} In a decision and entry dated December 16, 2013, the trial court granted
appellee's motion for summary judgment, concluding that, even when viewing the facts in
a light most favorable to appellants, the claims in the underlying complaint are not
covered under the policies appellee issued to appellants. The trial court determined the
claims for breach of contract, breach of warranty, negligent misrepresentation, and
negligent construction do not constitute "property damage" or an "occurrence" under the
policies. The trial court next determined the claims for civil fraud and violation of the
CSPA are excluded because they allege intentional conduct on the part of appellants
which is specifically excluded from coverage. Finally, the trial court concluded that even if
the claims did constitute an "occurrence" within the meaning of the policies, all the claims
occurred and were known to appellants prior to the policy dates and are thus excluded
from coverage on that basis as well. Appellants timely appeal.
II. Assignments of Error
{¶ 7} Appellants assign the following three assignments of error for our review:
[1.] The trial court erred in ruling that "claims for fraud and
violations of the Ohio's Consumer Sales Practices Act are
excluded from coverage as intentional acts."
[2.] The trial court erred in ruling that "claims for breach of
contract, breach of express warranty, negligent
misrepresentation, and negligent construction are excluded
from coverage."
[3.] The trial court erred in ruling that "[t]he claims occurred
prior to the policy dates and are excluded from coverage."
For ease of discussion, we address appellants' assignments of error out of order.
No. 14AP-35 4
III. Standard of Review
{¶ 8} An appellate court reviews summary judgment under a de novo standard.
Coventry Twp. v. Ecker, 101 Ohio App. 3d 41 (9th Dist.1995); Koos v. Cent. Ohio Cellular,
Inc., 94 Ohio App. 3d 579, 588 (8th Dist.1994). Summary judgment is appropriate only
when the moving party demonstrates (1) no genuine issue of material fact exists, (2) the
moving party is entitled to judgment as a matter of law, and (3) reasonable minds could
come to but one conclusion and that conclusion is adverse to the party against whom the
motion for summary judgment is made, that party being entitled to have the evidence
most strongly construed in its favor. Civ.R. 56(C); State ex rel. Grady v. State Emp.
Relations Bd., 78 Ohio St. 3d 181, 183 (1997).
{¶ 9} Pursuant to Civ.R. 56(C), the moving party bears the initial burden of
informing the trial court of the basis for the motion and identifying those portions of the
record demonstrating the absence of a material fact. Dresher v. Burt, 75 Ohio St. 3d 280,
293 (1996). However, the moving party cannot discharge its initial burden under this rule
with a conclusory assertion that the non-moving party has no evidence to prove its case;
the moving party must specifically point to evidence of the type listed in Civ.R. 56(C)
affirmatively demonstrating that the non-moving party has no evidence to support the
non-moving party's claims. Id.; Vahila v. Hall, 77 Ohio St. 3d 421, 429 (1997). Once the
moving party discharges its initial burden, summary judgment is appropriate if the
nonmoving party does not respond, by affidavit or as otherwise provided in Civ.R. 56,
with specific facts showing that a genuine issue exists for trial. Dresher at 293; Vahila at
430; Civ.R. 56(E).
IV. Third Assignment of Error – Timing of Claims
{¶ 10} In their third assignment of error, appellants argue the trial court erred in
determining the claims are excluded from coverage under the policies because they
occurred prior to the policy dates. Appellants suggest the critical inquiry is not whether
appellee will ultimately be liable for coverage but whether appellee has a duty to defend
against the claims. While we agree with appellants' characterization of the issue,
summary judgment was still appropriate.
{¶ 11} An insurer's duty to defend is both broader than and distinct from its duty
to indemnify. Cardiothoracic & Vascular Surgical Specialists, Inc. v. Travelers Indemn.
No. 14AP-35 5
Co., 10th Dist. No. 05AP-1355, 2006-Ohio-6947, ¶ 20, citing Socony-Vacuum Oil Co. v.
Continental Cas. Co., 144 Ohio St. 382 (1945), paragraph one of the syllabus; W. Lyman
Case & Co. v. Natl. City Corp., 76 Ohio St. 3d 345, 347 (1996). An insurer's duty to defend
an action is absolute when the complaint contains an allegation in any one of its claims
that is arguably within the scope of coverage of the insurance policy. Cardiothoracic &
Vascular Surgical Specialists at ¶ 20, citing Sanderson v. Ohio Edison Co., 69 Ohio St. 3d
582 (1994), paragraph one of the syllabus. Once it is determined an insurer must defend
one claim within a complaint, it must defend the insured on all other claims within the
complaint "even if they bear no relation to the policy coverage." Cardiothoracic &
Vascular Surgical Specialists at ¶ 20, citing Preferred Mut. Ins. Co. v. Thompson, 23
Ohio St. 3d 78, 80 (1986). See also Sharonville v. Am. Emps. Ins. Co., 109 Ohio St. 3d 186,
2006-Ohio-2180, ¶ 13.
{¶ 12} Conversely, however, an insurer has no duty to defend any action or any
claims within the complaint when all the claims are clearly and indisputably outside of the
contracted policy coverage. Cardiothoracic & Vascular Surgical Specialists at ¶ 21, citing
Preferred Risk Ins. Co. v. Gill, 30 Ohio St. 3d 108, 113 (1987). The action's ultimate
outcome or the insurer's ultimate liability does not determine the duty to defend an
action. Id., citing Motorists Mut. Ins. Co. v. Trainor, 33 Ohio St. 2d 41 (1973), paragraph
two of the syllabus. "There is no duty to defend 'if there is no set of facts alleged in the
underlying complaint against the insured that, if proven true, would invoke coverage.' "
Id., quoting Cincinnati Indemn. Co. v. Martin, 85 Ohio St. 3d 604, 605 (1999). Thus, if we
are able to discern that there is no possibility of coverage under appellants' policies it
obtained from appellee, then appellee will have no duty to defend appellants in the
underlying complaints.
{¶ 13} Here, to determine whether there is a possibility of coverage under the
policies, we look to the plain language of the policies themselves. Generally, courts
interpret insurance policies in accordance with the same rules applied in interpreting
other types of contracts. Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio
St.3d 657, 665 (1992). The interpretation and construction of written contracts is a
question of law subject to de novo review on appeal. State v. Fed. Ins. Co., 10th Dist. No.
No. 14AP-35 6
04AP-1350, 2005-Ohio-6807, ¶ 22, citing Long Beach Assn., Inc. v. Jones, 82 Ohio St. 3d
574, 576 (1998).
{¶ 14} "When provisions of an insurance policy are reasonably susceptible to more
than one interpretation, we must construe them strictly against the insurer" and "adopt
any reasonable construction that results in coverage for the insured." State Farm Mut.
Auto Ins. Co. v. Gourley, 10th Dist. No. 12AP-200, 2012-Ohio-4909, ¶ 12, citing Faruque
v. Provident Life & Acc. Ins. Co., 31 Ohio St. 3d 34, 38 (1987), and Emps. Reinsurance
Corp. v. Worthington Custom Plastics, Inc., 109 Ohio App. 3d 550, 558-59 (10th
Dist.1996).
{¶ 15} In determining the meaning of a contract, we give words and phrases their
plain and ordinary meaning "unless manifest absurdity results, or unless some other
meaning is clearly evidenced from the face or overall contents of the instrument."
Alexander v. Buckeye Pipe Line Co., 53 Ohio St. 2d 241 (1978), paragraph two of the
syllabus, superseded by statute on other grounds; Hedmond v. Admiral Ins. Co., 10th
Dist. No. 02AP-910, 2003-Ohio-4138, ¶ 33. "The intent of the parties to a contract is
presumed to reside in the language they chose to employ in the agreement." Kelly v.
Medical Life Ins. Co., 31 Ohio St. 3d 130 (1987), paragraph one of the syllabus.
{¶ 16} Both policies state, in relevant part:
b. This insurance applies to "bodily injury" and "property damage"
only if:
(1) The "bodily injury" or "property damage" is caused by an
"occurrence" that takes place in the "coverage territory";
(2) The "bodily injury" or "property damage" occurs during
the policy period; and
(3) Prior to the policy period, no insured * * * and no
"employee" authorized by you to give or receive notice of an
"occurrence" or claim, knew that the "bodily injury" or
"property damage" had occurred, in whole or in part. If such
a listed insured or authorized "employee" knew, prior to the
policy period, that the "bodily injury" or "property damage"
occurred, then any continuation, change or resumption of
such "bodily injury" or "property damage" during or after the
policy period will be deemed to have been known prior to the
policy period.
No. 14AP-35 7
(Commercial General Liability Form Section I(A)(1)(b).) This clause is commonly known
as a "loss in progress" or "known risk" clause. See, e.g., Ohio Cas. Ins. Co. v. Mansfield
Plumbing Prods., LLC, 5th Dist. No. 2011-COA-009, 2011-Ohio-4523, ¶ 10.
{¶ 17} Appellee asserts that, based on the plain language of the policies, if an
insured or its employees knew that bodily injury or property damage had occurred prior
to the policy period, then the continuation, change or resumption of such bodily injury or
property damage during the policy period is deemed to have been known by the insured
prior to the policy period. Thus, appellee argues, all the claims in the underlying
complaints are indisputably excluded from coverage because the damage they allege
occurred prior to the policy period and because appellants had knowledge of the damage
prior to the policy period. We agree with appellee that there is no ambiguity in the
language of the policies and that, based on the plain language, there will be no coverage
when the damage that occurred during the policy period is a continuation of damage that
occurred prior to the policy period. Id. at ¶ 20 (construing "loss in progress" clause to
mean that even if a court were to find each damage claim of a failing hush tube to be a
separate occurrence, where the damages all arose from the initial use of defective resin by
the plumping parts manufacturer and the plumping parts manufacturer knew prior to
purchasing the insurance policies that the hush tubes were failing, then the failing of the
hush tubes during the policy period "is a continuation of property damage and is excluded
by the loss in progress provision"). Thus, we must look to the underlying complaints to
determine whether they allege any set of facts which arguably fall within coverage.
{¶ 18} The Gifford complaint alleges Gifford first noticed water infiltration and
related problems with her basement walls on November 6, 2006 and that she timely
reported those problems to appellants. (Gifford Complaint, 2.) Gifford further alleged
appellants attempted to repair the problems but were unsuccessful. The Macrina
complaint similarly alleges Macrina first noticed water-related problems in her basement
in October 2006 and February 2007, and that appellants unsuccessfully attempted to
remedy those problems. (Macrina Complaint, 2.) Both Gifford and Macrina allege
appellants knew of and attempted to repair the problems, so we must determine when
appellants indisputably knew of the damage to determine whether the complaints allege
No. 14AP-35 8
damage that, based on the plain language of the policies, would be deemed to have
occurred prior to the policy periods.
{¶ 19} "In determining whether a complaint states a claim that is potentially or
arguably within policy coverage thereby triggering the insurer's duty to defend, we may
consider matters 'outside the four corners of the pleadings.' " Motorists Mut. Ins. Co. v.
Natl. Dairy Herd Improvement Assn., Inc., 141 Ohio App. 3d 269, 278 (10th Dist.2001),
quoting Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St. 3d 177, 180 (1984). In support
of its motion for summary judgment, appellee relied on the deposition testimony of
Gifford and Macrina to establish when they reported the water-related issues to
appellants. Macrina stated she discovered the issues in February 2007, agents of
appellants cut into her basement wall in November 2007, and a representative of
appellants came to inspect the attempted repairs in 2008. (Macrina Depo., 35, 74.)
Macrina further stated the repairs were unsuccessful and the issues with water infiltration
in her basement continued unabated up until the time she filed her complaint. Gifford
stated she discovered the backup of sewer and drains in her basement on July 3, 2006.
(Gifford Depo., 113.) Representatives of appellants attempted repairs multiple times, and
Gifford specifically mentioned appellants' representatives performing work in an effort to
fix the problems in spring 2007, December 2008, and March 2009. (Gifford Depo., 89,
92.) Appellants did not refute these dates with any Civ.R. 56 evidence or deny that they
had actual knowledge of the water and plumbing issues on the dates Gifford and Macrina
referred to in their depositions. Thus, it is undisputed that the damage Gifford and
Macrina described in their complaints began prior to the policy periods and that
appellants knew of that damage prior to the policy periods. Based on the plain language
of the policies in section I(A)(1)(b) of each policy, all of the damage alleged in the
complaint falls outside of the policy coverage.
{¶ 20} Appellants insist it is enough that some harm occurred during the policy
period to invoke coverage regardless of whether that harm is a continuation of harm that
occurred outside the policy period. This interpretation, however, defies the plain
language of the policies. We are mindful that in examining the underlying complaint, we
must not " ' "stretch the allegations beyond reason to impose a duty on the insurer. To do
so would effectively impose an absolute duty upon the insurer to provide a defense to the
No. 14AP-35 9
insured regardless of the cause of action stated in the complaint." ' " Cardiothoracic &
Vascular Surgical Specialists at ¶ 22, quoting Natl. Dairy Herd Improvement Assn. at
279, quoting Leland Electrosystems, Inc. v. Travelers Ins. Co., 2d Dist. No. 8580 (July 10,
1984).
{¶ 21} Here, it is undisputed that the damage alleged in the underlying complaints
began before the policy period and appellants knew of the damage before the policy
period. Based on the plain language of the policies, these claims do not fall within policy
coverage, as the policies make it clear that a continuation or resumption of this same
damage is not sufficient to bring the claims within policy coverage. See Mansfield
Plumbing Prods. at ¶ 20. Accordingly, the trial court did not err in concluding appellee
had no duty to defend the underlying complaints where all of the claims alleged are
indisputably excluded from policy coverage. We overrule appellants' third assignment of
error.
V. First and Second Assignments of Error – Intentional Acts, Occurrence,
and Damages
{¶ 22} Because our resolution of appellants' third assignment of error is dispositive
and renders moot appellants' first and second assignments of error, we need not address
them.
VI. Disposition
{¶ 23} Based on the forgoing reasons, the trial court did not err in granting
appellee's motion for summary judgment. Having overruled appellants' third assignment
of error and rendered moot appellants' first and second assignments of error, we affirm
the decision and entry of the Franklin County Court of Common Pleas.
Judgment affirmed.
CONNOR and DORRIAN, JJ., concur.