CGL Provides No Cover For Building House on Someone Else’s Land
Insured’s Work On Property Was Clearly Excluded
No insurance policy provides coverage for every possible risk of loss. When an insured builder built a house that encroached on the property of another, it sought coverage for the damages of the true property owner. The insurer provided a defense under a reservation of rights but refused to pay the damages assessed.
In ProBuilders Specialty Ins. Co. v. Coaker, Slip Copy, 2015 WL 7018415 (W.D.Wash., 11/10/2015), ProBuilders Specialty Insurance Company, RRG (“PBSIC”) moved for summary judgment seeking a declaration that PBSIC owed no duty to indemnify Defendants Michael and Marilee Coaker (“the Coakers”), Sundance Builders, Inc. (“Sundance”), and Mike’s Roofing, Inc. (“Mike’s Roofing”) for damages arising out of the construction of the Coakers’ single-family home in Duvall, Washington.
BACKGROUND
This is an insurance coverage case that arises out of a mistake concerning property lines.
In 2004, the Coakers purchased a piece of real property in Duval, Washington, for the purpose of building one or more houses there. Adjacent to the Coakers’ property sits a parcel of undeveloped forest land owned by three brothers named Chen (“the Chens”). The Chens’ property included a 30-foot by approximately one-quarter-mile strip of land known as “the panhandle” that extended out to the west from the bulk of the Chens’ property. The panhandle lay between the southern border of the Coakers’ property and the northern border of the property of another neighbor, Robert Wilan. Mr. Coaker did not know of the panhandle when he and his wife purchased their property, and he mistakenly believed that his southern property line abutted Mr. Wilan’s northern property line.
Sundance Builders, Inc. is a company that the Coakers formed in 2005 for the purpose of constructing residential homes and townhouses. Their policies provided three coverages: Bodily Injury and Property Damage (Coverage A), Personal Injury and Advertising Injury (Coverage B), and Medical Payments (Coverage C).
In 2008, the Coakers, acting through Sundance, began building a house for themselves. Defendants believed that they were building the house entirely on the Coakers’ property, but in fact the house encroached on the Chens’ panhandle. When Mr. Coaker learned of the error, he contacted Eric Chen and began negotiating a possible solution. The boundary agreement ultimately fell through, however, and at some point negotiations ceased.
In 2014, the Chens filed suit against the Coakers, Sundance, and Mike’s Roofing in King County Superior Court alleging causes of action for trespass and negligence and seeking damages, ejectment, and specific performance of the boundary agreement. PBSIC received notice of the Chens’ suit on August 8, 2014. PBSIC defended under a reservation of rights.
The case proceeded to a bench trial before the Honorable Samuel Chung, and on August 17, 2015, Judge Chung found that the Coakers had been negligent in building the house on the Chens’ panhandle. Nevertheless, Judge Chung concluded that the appropriate remedy was to quiet title to the panhandle in the Coakers and require the Coakers to pay the Chens the monetary value of that land.
On December 12, 2014, PBSIC sued contesting coverage. PBSIC sought summary judgment declaring that the policies it issued to Sundance provide no coverage for any damages arising out of the construction of the Coakers’ house. PBSIC offers several arguments to support this request, including that (1) no “property damage” occurred, as the policies define that term, and (2) even if property damage did occur, various exclusions preclude coverage.
DISCUSSION
Insurance Contract Interpretation
The interpretation of an insurance policy is a question of law for the court.
Bodily Injury, Advertising Injury, and Personal Injury
PBSIC argues, with citations to relevant policy provisions, that neither the allegations in the underlying litigation nor any facts in the record in this case trigger bodily injury, advertising injury or personal injury coverages. The court agreed with PBSIC and finds that summary judgment in PBSIC’s favor is appropriate on this issue of whether it owes indemnity. PBSIC has no duty under the policies’ bodily injury, advertising injury, and personal injury coverages to indemnify Defendants for damages arising out of the construction of the Coakers’ house.
Property Damage & Exclusion (J)(5)
PBSIC’s motion turns on the parties’ dispute over whether the policies’ property damage coverage applies here. PBSIC asserts that such coverage does not apply because the underlying litigation did not involve “property damage,” as the policies define that term. PBSIC further argues that even if the underlying litigation involved property damage, multiple exclusions bar coverage for such property damage.
The court concluded that exclusion (J)(5) precludes coverage for damages arising out of the construction of the Coakers’ house. Even if the underlying litigation involved property damage as the policies define that term, the policies’ property damage coverage remains subject to multiple exclusions. Pursuant to exclusion (J)(5), however, “[t]his insurance does not apply to … [p]roperty damage to … [a]ny real property on which you … are performing operations, if the property damages arises out of those operations….”
It is undisputed that Sundance was in the home construction business, that Sundance selected the site for the Coakers’ house and constructed the house on that site, that the house encroached on the Chens’ real property, and that the construction caused the alleged damage to the Chens’ real property. As such, the Chens’ property damage was (1) property damage to real property on which Sundance was performing operations, and (2) property damage that arose out of Sundance’s operations. Exclusion (J)(5) therefore bars coverage in this case. Under that exclusion, the Chens’ property damage was not “property damage to which this insurance applies.”
The court concluded that the policies excluded coverage for damages arising out the construction of the Coakers’ home.
ZALMA OPINION
The exclusion on which the court relied was clear and unambiguous. Even if it did not exist, there was no bodily injury, property damage or personal injury as those terms are defined in the policy. The court decided to use the exclusion since it was more clear than relying on a definition to avoid coverage, although both were appropriate.
