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Desert Mountain Limited Ptsp v. Liberty Mutual (CA1 8/3/10)

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[THIS OPINION HAS BEEN AFFIRMED]

A long opinion about general liability insurance, telling you things we rather imagine you never knew.

Desert Mountain developed and sold some houses in Scottsdale. When the buyers complained of soil and other problems, Desert Mountain paid $200,000 per house, on average, to fix them. It then sought to recover the money from Liberty Mutual, its CGL carrier. Liberty Mutual denied the claim. Desert Mountain sued for breach of contract and bad faith.

The trial court granted Liberty Mutual summary judgment on bad faith.  It ruled that Desert Mountain could not recover the cost of repairing poorly-compacted soil, since that wasn’t an “occurrence,” but could recover the cost of repairing damage caused by the poorly-compacted soil. It also ruled that Desert Mountain couldn’t “mark up” the costs incurred, i.e., build in additional amounts to cover its employee’s time. The contract claim went to trial; Desert Mountain won; Liberty Mutual appealed.

The insurance promised to pay sums Desert Mutual was “legally obligated to pay as damages.” Liberty Mutual argued, first, that Desert Mountain hadn’t been legally obligated to the homeowners since they hadn’t sued it. The carrier relied on California law, which is that “legally obligated” means legally obligated by a court. But this opinion disagrees, holding that courts enforce legal obligations but are not needed to create them.  And “damages,” according to the opinion, are monies paid for a loss, not simply amounts awarded by a court. Liberty Mutual didn’t argue that the homeowners’ claims had no merit nor that the amounts Desert Mountain paid were excessive, so Desert Mountain was entitled to recover.

But Liberty Mutual also argued that the damage to the houses was, under the economic-loss rule, recoverable only in a contract action and that insurance policies cover tort, not contract, claims. The court, however, was “reluctant” to hold that a CGL policy can’t cover contract damages because it does not expressly and flatly bar all contract claims. Being “reluctant” to do something is an unforthright way of doing the opposite: “Instead, we hold that the ‘proper inquiry is whether an ‘occurrence’ has caused ‘property damage.’”

An endorsement to the policy denied coverage for damage to property not owned or rented by the insured, “the restoration, repair, or, replacement of which has been made or is necessary by reason of faulty workmanship thereon by or on behalf of the insured.” This, the court says, applies to the repair of defective workmanship and not to the repair of damage caused by defective workmanship to non-faulty property. In other words, the houses were perfectly fine, it was only the soil that was faulty, so fixing the soil isn’t covered but fixing the homes is. (We wonder how many homeowners in all those faulty-soil cases consider, and allege, that their houses are just peachy, thanks, its just that pesky soil that’s the problem.)

The policy also said, as all such policies do, that it doesn’t cover payments made voluntarily and without the insurer’s consent. The court held that the provision only applies if the insurer is prejudiced and that a jury could reasonably have concluded that Liberty Mutual wasn’t.

Liberty Mutual argued that Desert Mountain knew of the problems with the houses before it bought the policy. In that case, an exclusion would apply. Desert Mountain’s people testified that its prior knowledge was only of a few, minor problems, not of anything widespread, and that those minor problems had been fixed. Liberty Mutual’s expert apparently agreed. In any event, there was sufficient evidence for a jury to find that Desert Mountain didn’t have prior knowledge.

Liberty Mutual also complained about some jury instructions, about some fact-specific issues, and about the award of attorneys fees, which are of no real importance unless your name is Desert Mountain or Liberty Mutual. We do wonder, though, how it is that the court instructed the jury on what the coverage was, turning a question of fact into a matter of law.

Desert Mountain cross-appealed.

First, it contested the trial court’s ruling that it couldn’t recover the cost of repairing the soil because some of that cost resulted from having to rip up perfectly good walls or floors. The Court of Appeals concluded that this was part of repairing the defect and that the trial court was therefore right in not allowing it.

Next, Desert Mountain contended that Liberty Mutual wasn’t entitled to summary judgment on bad faith. The court, for factual reasons, disagreed.

Finally, Desert Mountain argued about the mark-up damages. But the policy did not specifically allow them. In addition, its mark-up did not reflect the actual value of the employee’s time, so the jury couldn’t have awarded it anyway.

The important part of all this is that liability polices now cover claims never made and that would have been contract claims if they had been made, courtesy of some hair-splitting sophistry of the sort we thought Arizona courts were now trying to discourage.

(link to opinion)

Tarron v. Bowen Machine (8/3/10)

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This reverses a Court of Appeals opinion we blogged here. Please read that first (or at least all but the last paragraph) to put what we are about to say in context:

The Supreme Court agreed.

The court says that it took review of this case in order to provide “interpretation of the borrowed servant doctrine.” But it adds nothing to the law except three relatively trivial points. First, the fact that a servant can have two masters means that an earlier case was wrong if it implied that a master must have exclusive control. Second, in a battle of footnotes with the Court of Appeals, “borrowed” employee is a tort concept whereas “lent” employee is a workers compensation concept (CA1’s footnote said they were synonymous) Third, the court doesn’t like (“we . . . distance ourselves from”) language in a 1937 case that an element in determining which entity was the master is which one the employee was “furthering the business” of, since one entity may be in the business of lending servants. (If one of them isn’t in that business then the language would still seem a perfectly useful guide but this opinion puts it under a cloud in all cases.)

So what does the case interpret? Well, the Court of Appeals remanded “for a trial consistent with this decision.” The Supreme Court takes care to explain that there will be no new trial on damages or allocation of fault. That’s what the Court of Appeals may have meant anyway but now there can be no argument: the amount in controversy will safely remain $900,000. The only question will be whether Bowen is responsible for it.

The opinion tries to seem significant. It even cites Benjamin Cardozo. (So now you like the guy? What about when your court casually, without admitting what it was doing, abandoned his seminal opinion?) But it is the Court of Appeals’ opinion restated more succinctly. We didn’t know why that opinion was published; we didn’t understand why the Supreme Court took review. We still don’t. As for the Supreme Court, though, the rest of the opinion is so lightweight that we will forgive those who suspect the part about remand of being the tail wagging the dog.

 

(link to opinion)

Robinson v. Kay (CA2 7/30/10)

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Another Rule 54(b) problem.

The Robinsons sued to establish an implied (Count One of the Complaint) and prescriptive (Count Two) easement to use a road over the Kay’s property. Both parties moved for summary judgment on Count One; the trial court ruled for the Kays and entered a judgment which, by stipulation, included Rule 54(b) language. The Robinsons appealed.

The Court of Appeals, on its own motion, dismissed the appeal. “Easements by prescription and implication are separate legal ‘theories’ supporting the existence of an easement; they do not in themselves constitute separate ‘claims.’” And “when a judgment merely disposes of one or more legal theories supporting a single claim, ‘Rule 54(b) language does not make the judgment final and appealable.’”

One would have thought that with Count Two still hanging out there the Robinsons would have spotted the problem. If they did but decided that the prescriptive-easement claim wasn’t worth pursuing, the answer in that situation is to take a lesson from the criminal side and remember that sometimes you have to dismiss things to set up your appeal.

On the other hand, Rule 54(b) problems are (depressingly) common and the Court of Appeals tends to deal with them by suspending the appeal until the paperwork can get cleaned up. Perhaps – since everything the parties did was consistent with the idea that the Robinsons didn’t want to proceed with Count Two, and since their lawyers are supposed to know what they’re doing, and since if that’s right then the appeal will have to be re-filed as soon as the parties can dismiss Count Two, and since this opinion says that the court is concerned about piecemeal appeals –  the court could have entered an order giving the parties ten days to dismiss Count Two or the appeal would be dismissed. (Our vote would be to dismiss all these appeals, since lawyers might then actually bother to do things right, but we’re not holding our breath.)

 

(link to opinion)