13 Fla. L. Weekly Supp. 266a
Insurance — Commercial general lines — Coverage — Declaratory action — Insurer’s obligation to indemnify general contractor that contracted to design and build home for damages caused to home by settling due to compression of peat layer under house — If in homeowner’s lawsuit against contractor, contractor proves that damages were result of faulty workmanship by subcontractors in failing to find peat layer under house and remove it or design foundation accordingly, there is coverage under policy unless an exclusion applies — Exclusions — If it is proven in lawsuit that contractor contractually assumed responsibility to design home and foundation and agreed to determine subsurface conditions, policy’s contractual liability exclusion would exclude coverage — However, if contractor is liable to homeowner on some theory other than contractual theory, whether contractor is also liable on contractual theory or not, contractual liability exclusion would not apply — Where policy contains exclusion for damages caused by earth movement, but does not include language specifying that exclusion applies regardless of cause of excluded event, earth movement exclusion applies only to damage caused by natural phenomena and not to movement caused by human activity — Determination of whether settling was caused by natural phenomena or human activity turns, not on whether peat layer was created by human act of piling vegetation from canal dredging or natural event, but on what caused compression of peat layer — Where expert testified that compression was caused by human activity of placing fill, house and pool on lot, earth movement exclusion does not apply — Where there remain genuine issues of fact as to whether subcontractors’ workmanship deficiencies are responsible for damages and whether contractor is liable only on theory of contractual liability, insurer’s motion for summary judgment is denied
AUBUCHON HOMES, INC., Plaintiff, vs. GREAT AMERICAN INSURANCE COMPANIES, and JEFFREY LEE HURWITZ and MINDY JOY HURWITZ, Defendants. Circuit Court, 20th Judicial Circuit in and for Lee County, Civil Action. Case No. 04 CA 004430 L. January 27, 2006. R. Thomas Corbin, Judge. Counsel: Michael A. Pohl. Ronald L. Buschbom. James L. Nulman. Gary W. Nicholson.
ORDER DENYING GREAT AMERICAN’S MOTION FOR SUMMARY JUDGMENT
This matter having come before the court on Great American’s Motion for Summary Judgment, it is ordered:
1. Findings
The plaintiff, Aubuchon, has sued for declaratory relief, asking the court to declare that Great American’s insurance policy indemnifies it for the damages complained of by the defendants Hurwitz in another lawsuit. The Hurwitzes have sued Aubuchon in another lawsuit for breach of contract and negligence.
In Count I of their Amended Complaint, the Hurwitzes say that Aubuchon contracted to design and build them a home, and, in particular, Aubuchon agreed to determine the “composition of the soil and the subsurface conditions” and to design the fill and foundation requirements according to the subsurface conditions. They allege Aubuchon guaranteed “all workmanship and material.” They refer to “paragraph 14” of the “Construction Agreement” which provides:
“[the lot owners are] responsible for any additional expense in the event the composition of the soil or subsurface. . .require: Additional or longer pilings; extra support structures, work or fill; or extra foundation block or fill over and above that described above.” Hurwitzes’ Amended Complaint paragraph 10.
The Hurwitzes say this language means they were responsible to pay for any extra pilings or other foundation work or extra fill dirt above and beyond a basic estimate for the cost of the foundation and fill dirt, but Aubuchon was responsible to determine the “subsurface conditions” before it designed their home and then design the foundation and the fill requirements accordingly. The Hurwitzes allege the plaintiff “did, in fact, prepare the plans and specifications for the construction of the Home.” Hurwitzes’ Amended Complaint, paragraph 7.
The Hurwitzes allege that after their home was finished it “settled significantly” and as a result the home was damaged.
In Count II, on the same facts, the Hurwitzes sue Aubuchon for negligence. Aubuchon has denied the Hurwitzes’ allegations and has raised several affirmative defenses. Aubuchon has also filed a Third Party Complaint against two of its subcontractors.
In this lawsuit, Aubuchon’s Complaint says Great American’s policy indemnifies it for the “damages allegedly sustained by” the Hurwitzes. The policy is a Commercial General Lines or “CGL” policy. Great American denies Aubuchon’s allegations and says, first, its policy does not provide coverage and, second, if it does provide coverage, two exclusions exclude coverage, that is, a “contractual liability” and an “earth movement” exclusion.
Relevant excerpts of the policy provide as follows:
“SECTION I — COVERAGES
. . .
1. Insuring Agreement
a. We will pay those sums that the insured become legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. . . .
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”; and
(2) The “bodily injury” or “property damage” occurs during the policy period.
. . .
2. Exclusions
This insurance does not apply to:
. . .
b. Contractual Liability
“Bodily injury” or “property damages” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract or agreement;
. . .
. . .
j. Damage To Property
“Property damage” to:
. . .
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
. . .
Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.
. . .
l. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This 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.
m. Damage To Impaired Property Or Property Not Physically Injured
“Property damage” to “impaired property” or 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.
. . .
SECTION V-DEFINITIONS
8. “Impaired property” means tangible property, other than “your product” or “your work”, that cannot be used or is less useful because:
a. It incorporates “your product” or “your work” that is known or thought to be defective, deficient, inadequate or dangerous; or
b. You have failed to fulfill the terms of a contract or agreement;
if such property can be restored to use by:
a. The repair, replacement, adjustment or removal of “your product” or “your work”; or
b. Your fulfilling the terms of the contract or agreement.
. . .
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
. . .
16. “Products-completed operations hazard”:
a. Includes all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except:
. . .
(2) Work that has not yet been completed or abandoned. . . .
. . .
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. . . .
. . .
20. “Your product” means:
a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(1) You;. . . .
. . .
21. “Your work” means:
a. Work or operations performed by you or on your behalf; and
b. Materials, parts or equipment furnished in connection with such work or operations.”
Endorsement ML 10 03 (01 98) provides:
“EXCLUSION — INJURY OR DAMAGE FROM EARTH MOVEMENT
. . .
This insurance does not apply to ‘bodily injury’, ‘property damage’, ‘personal damage’, ‘personal injury’, and ‘advertising injury’ arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mudflow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.”
Both Great American and Aubuchon rely on a letter dated June 27, 2002, from John H. Lamb, Ph.D., P.E., containing his opinion that a layer of “Peat” was found in the soil below the Hurwitzes’ home “beginning at 8 foot depth and varying in thickness from 2 feet to 5 feet.” He says a report he relied on “did not find any indication of sinkhole activity.” He concludes: “It is clear that the settlements are due to the Peat consolidating under the weight of the fill, the house and the pool. Furthermore the settlements will continue at a slow rate for years.”
Dr. Lamb further says that a layer of limestone is some distance below the surface and “a square grid of borings on approximate 10 feet centers and at least 5 feet into the underlying limestone should be made in the area occupied by the house to determine the area and thickness of the Peat. This would require that the house be moved or demolished.” He also recommends that where “Peat underlies the house it must be removed and replaced with Engineered Fill. If replacement is not done, the house foundations, floor slab, pool deck, pool and any other construction must be supported by piles. This requires that all slabs supported by piles be structural slabs properly designed by a structural engineer.”
Aubuchon believes the peat layer was created many years ago when the canal adjacent to the Hurwitzes’ lot was dug, and the plants growing in the area of the canal and on either side of the canal were covered with dirt dug from the canal. In the Examination Under Oath of Gary Aubuchon dated December 1, 2005, taken in the other lawsuit, at pages 11 and 12, Mr. Aubuchon testified that the home is built on a “man-made” canal, and Mr. Aubuchon’s “belief” is “that in the case of whomever dredged that canal down in Bonita, they took the spoils, specifically the vegetation, put it on the property, and then covered it over with fill.” Page 11, line 25, & page 12 lines 1-4; Page 22, lines 3-6. He also suggested that part of the settlement could be due to improper compaction of the fill dirt that was brought to the job site. Page 61, lines 5-8.
Aubuchon has also filed the deposition of Frederick Zacharias, taken March 22, 2004, in the Hurwitzes’ lawsuit. Mr. Zacharias was one of the two men who developed the subdivision where the Hurwitzes’ lot is located. He explained that he and his partner owned a parcel on the Imperial River in South Lee County, and in 1972 or 1973 they had a 1,500 foot canal dug into their property and then they subdivided lots on either side of the canal. Page 9, lines 4-21. The Hurwitzes’ lot is “either the second or the third lot from the river on the canal.” Page 10, lines 3, 4. He said the “material that was dredged up out of the canal” . . . “went on the embankments.” Page 10 Lines 12-14. He also said he has never had any complaints about a layer of peat under any house in the subdivision. Page 16, line 13, 14; page 17, line 15-17. He said he and his partner had “permits for everything,” page 20, line 9, and that he did not “have the slightest idea at all” whether “the company that did the dredging would have done any soil tests.” Page 20, lines 23-25.
Mr. Aubuchon testified that Aubuchon built this home entirely through subcontractors. Gary Aubuchon Examination Under Oath Page 5, lines 20, 21. He said that the plaintiff contracted with a “site work contractor,” who brought in and compacted the fill dirt. Page 6, line 4. He said that “seven and a half feet of fill from the existing elevation” was added to the property. Page 6, line 17.
He also testified that Aubuchon contracted with a “project engineer,” page 8, line 25, whose job it was “to make sure that the design meets the structural integrity guidelines of the building code. . .” Page 9, lines 3-5. Mr. Aubuchon understood that encompassed “both the property and the house itself.” Page 9, line 9.
Finally, Mr. Aubuchon identified a third subcontractor, whom he described as “geotechnical engineers.” Page 10, lines 7, 8. This subcontractor was a firm of “degreed (sic) engineers who are there to study the earth.” Page 10, lines 11, 12. He said these engineers “tested the density of the soils that were imported” and also the compaction of the fill dirt. Page 10, line 18. He believed these engineers and the project engineer should have said “we should also be testing this other soil here,” especially in light of the great weight of the large amount of fill brought to the site. Page 10, line 25; page 11, line 1.
2. Ruling
2.1 The motion is denied. There are genuine issues of material fact about whether the policy covers the plaintiff for the damages allegedly suffered by the Hurwitzes. In particular, there is a question of fact about whether Aubuchon’s subcontractors are responsible for any workmanship deficiencies that resulted in the damages complained of by the Hurwitzes and whether Aubuchon is liable to the Hurwitzes on a theory of contractual liability or some other theory or on both a contractual liability and another theory.
2.2 Aubuchon cites J.S.U.B. Inc. v. United States Fire Ins. Co., 906 So.2d 303 (Fla. 2d DCA 2005), in which a general contractor built some homes and “[s]ubcontractors performed all work related to soil acquisition, compaction, and testing.” Id at 304. After the homes were completed, the homes “suffered damage when the exterior walls moved or sank as a result of improper compaction of the soil, improper testing of the soil compaction, poor soil or fill material, or a combination thereof.” Id. at 304, 305. A CGL policy was at issue and the policy provisions quoted in J.S.U.B. are identical to the same provisions of the CGL policy at issue in this case, with the exception of “Section I – Coverages,” paragraph “2. Exclusions,” subparagraph “b. Contractual Liability” and the “earth movement exclusion,” neither of which are cited in the J.S.U.B. opinion.
After a bench trial, the trial court in J.S.U.B. ruled the policy did not provide coverage for poor workmanship and ruled for the insurer. The appellate court reversed and held the policy did provide coverage to the general contractor for the workmanship deficiencies of its subcontractors that “resulted in later damage to the homes.” Id. at309.
J.S.U.B. is factually different from this case in that in J.S.U.B. the damages resulted from poor fill dirt and improper compaction and testing of the fill dirt while in this case the damages are caused by the compression of a layer of peat that lies below the fill dirt, although Mr. Aubuchon did suggest that improper compaction of the fill could be responsible for a small part of the settlement. However, this factual difference is not significant because in both cases the insureds claim that all of the work on the homes was performed by subcontractors, and Aubuchon says that if it is liable to the Hurwitzes at all it is because its subcontractors did deficient work, that is, they failed to find the layer of peat under the home site and dig it out or design the foundation accordingly.
Therefore, Aubuchon argues that if there is any poor workmanship in the construction of the Hurwitzes’ home, it was performed by its subcontractors and, therefore, under J.S.U.B. there is coverage under this CGL policy.
Aubuchon is correct if Aubuchon proves in the Hurwitzes’ lawsuit that the damage to the home was “the result of faulty workmanship by [its] subcontractors,” which was the finding of the trial judge after the bench trial in J.S.U.B. and the factual basis of the appellate court’s opinion. If this is proven, there is coverage unless an exclusion applies.
But, of course, the responsibility of Aubuchon’s subcontractors for the damages to the Hurwitzes’ house has not been established in this record. That is the basis of the allegations in Aubuchon’s Third Party Complaint in the other lawsuit. Therefore, whether Aubuchon’s subcontractor’s work was deficient and whether those deficiencies resulted in the damages complained of by the Hurwitzes are facts that are still in dispute, and, for this reason, the motion must be denied.
Assuming the Third Party Complaint is determined favorably to Aubuchon, there is coverage, and the next question is whether any exclusion in the policy excludes coverage.
In J.S.U.B., the appellate court held that coverage for damages resulting from the workmanship deficiencies of the contractor’s subcontractors was not excluded by the “Damage to Property,” “Damage To Your Work,” or “Damage To Impaired Property Or Property Not Physically Injured” exclusions. The insurer here has not raised these three exclusions. Rather, here the insurer raises the “contractual liability” and the “earth movement” exclusions. These exclusions were not at issue in J.S.U.B.
In J.S.U.B. there is no mention that the homeowners were suing for breach of contract, perhaps because the homeowners bought their homes after they were built by the builder and the sales contracts did not contain provisions about subsurface conditions. Whatever the case may be, the homeowners’ theories of recovery were not discussed in J.S.U.B.
Also, in J.S.U.B., there is no mention of an “earth movement exclusion,” even though the homes were damaged because they “sank as a result of improper compaction of the soil, improper testing of the soil compaction, poor soil or fill material, or a combination thereof.” Id. at 304, 305. Perhaps this exclusion was not in the J.S.U.B. policy. Whatever the case may be, it was not discussed.
These two differences between this case and J.S.U.B. are significant for two reasons. First, the Hurwitzes’ allege Aubuchon contractually assumed the responsibility to design their home, including the foundation, and that Aubuchon agreed to determine the “subsurface conditions.” If this is proven, that is a contractual liability Aubuchon assumed, and, if so, there is no coverage because of the exclusion contained in “Section I — Coverages,” paragraph “2. Exclusions,” subparagraph “b. Contractual Liability.”
Of course, whether Aubuchon is contractually liable to the Hurwitzes, as they allege, or whether it is liable to them under any other theory will be determined in the Hurwitzes’ lawsuit. If Aubuchon is liable to the Hurwitzes on some theory other than a contractual theory, whether it is also liable on a contractual theory or not, then the “contractual liability” exclusion does not apply because of the exception to that exclusion which provides: “This exclusion does not apply to liability for damages: (1) That the insured would have in the absence of the contract or agreement; . . .”
Second, the damages alleged by the Hurwitzes were caused by settlement of the soil under their home. Therefore, Great American says the “earth movement exclusion” excludes this loss from coverage, regardless of the Hurwitzes’ theory of recovery, because it excludes “property damage” resulting from “settling.”
Aubuchon says this exclusion does not apply to a “man-made” movement of the earth, citing Fayad v. Clarendon National Insurance Co., 899 So.2d 1082 (Fla. 2005), in which the supreme court held that damages caused by blasting were not excluded by an “earth movement exclusion.” The court compared the language of the policy in Fayad with that found in State Farm Fire & Casualty Co. v. Castillo, 899 So.2d 1082 (Fla. 3d DCA 2002). The court noted the State Farm “earth movement exclusion” had a “lead-in provision” that stated the exclusion applied to any loss“regardless of (a) the cause of the excluded event;. . .” Id. at 1087, italics in opinion. This language was missing from the policy in Fayad. Therefore, the supreme court ruled that the Fayad “earth movement exclusion” applied only to “damage caused by natural phenomena.” Id. at 1088.
This “regardless . . . of cause” language is also missing from the policy in this case. Therefore, the “earth movement exclusion” in this case applies only to natural phenomena and not to earth movements caused by human activity.
The question, therefore, is whether the settling was caused by natural phenomena or by human activity. Dr. Lamb’s report shows the damage to the home was caused by settling which was caused by the compression of a peat layer under the house. The determination of whether this settling is the result of a natural or a man-made cause does not turn on whether the peat layer was produced by human efforts, say by piling fill on vegetation, or whether it was formed by a natural event, say a storm that produced a storm surge that deposited sand on top of vegetation. The fact is there is a layer of peat under the house, whatever its source. The question is what caused the compression.
Dr. Lamb explained the compression was caused by the placement of seven and a half feet of fill on the lot and the construction of a house and pool on the fill. He says the weight of these man-made improvements compressed the peat and moved the earth down. These improvements are not natural phenomena, and just as blasting is a man-made activity that can move the earth, so the delivery of tons of fill dirt, concrete and lumber to a job site is a man-made activity that can move the earth. Therefore, this downward movement of the earth is not excluded by the “earth movement exclusion.”
So, of the two exclusions raised by Great American, only the “contractual liability” exclusion might exclude coverage. Assuming Aubuchon’s subcontractors’ workmanship deficiencies are determined to be responsible for the Hurwitzes’ damages, and therefore there is coverage in the first place, and assuming Aubuchon is liable to the Hurwitzes only on a theory of contractual liability, and no other theory, then the “contractual liability” exclusion excludes coverage and Great American prevails in this lawsuit; otherwise, Aubuchon prevails. But, the responsibility of the subcontractors for the Hurwitzes’ damages is not demonstrated in this record, and likewise the record does not demonstrate whether Aubuchon is liable to the Hurwitzes only for a breach of contract, if it is liable to them at all.
Therefore, there are genuine issues of fact and Great American’s motion for summary judgment must be denied. See, e.g., Rad Source Technologies, Inc. v. Colony Nat. Ins. Co., 914 So.2d 1006 (Fla. 4th DCA 2005).
2.3 Further, from the pleadings and the argument of counsel, it is not clear whether Great American is contending that it has neither a duty to defend nor a duty to indemnify. As the court said in Rad Source, supra:
“[A] duty to defend claims against an insured is greater than an insurer’s duty to indemnify. See First Am. Title Ins. Co. v. Nat’l Union Fire Ins. Co., 695 So.2d 475, 476 (Fla. 3d DCA 1997). ‘All doubts as to whether a duty to defend exists in a particular case must be resolved against the insurer and in favor of the insured.’ Grissom v. Commercial Union, 610 So.2d 1299, 1307 (Fla. 1st DCA 1992). An insurer must defend a lawsuit against its insured if the underlying complaint, when fairly read, alleges facts which create potential coverage under the policy. See Int’l Surplus Lines Ins. Co. v. Markham, 580 So.2d 251, 253 (Fla. 2nd DCA 1991).” Id. at1007.
This issue was not argued or presented to the court. Perhaps the court does not need to decide it.
* * *
