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Western Casualty & Surety Co. v. Brochu

OPINION FILED FEBRUARY 22, 1984.

THE WESTERN CASUALTY & SURETY COMPANY, PLAINTIFF-APPELLANT,

v.

RICHARD BROCHU ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Lake County; the Hon. Lawrence D. Inglis, Judge, presiding.

JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:

The Western Casualty & Surety Company (Western) brought this action for declaratory judgment (Ill. Rev. Stat. 1981, ch. 110, par. 57.1, recodified as section 2-701 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 2-701)) before the circuit court of Lake County. Western sought a judicial declaration that a policy of insurance it had issued did not apply to a property damage claim brought against its insured, Mark III Development Company, a corporation (Mark III), and Sig L. Bjerga, its president. The co-defendants, Richard and Marita Brochu (the Brochus), who brought the property damage claim against Mark III, filed a motion for summary judgment, arguing Western's policy applied to the occurrence complained of by the Brochus. Mark III joined in this motion. The trial court granted summary judgment, finding that Western was obliged to defend and, upon a finding of liability, indemnify under the policy. Western appeals.

Western raises two issues on appeal. First, it contends the policy issued to Mark III contained certain terms which excluded coverage for occurrences such as that claimed by Mark III; specifically it contends that the policy excluded coverage for both damage to the named insured's products, and to property damage arising out of the work performed by the insured. Western's second contention is that the trial court erred in finding that Western had waived its opportunity to assert a policy defense. It argues that where a policy does not cover a particular claim, coverage cannot be imposed by virtue of waiver. Western contends that whether a waiver occurred is a factual question not properly a subject of a summary judgment proceeding.

The facts of this case reveal that Sig Bjerga (Bjerga), one of the defendants in this cause, purchased insurance for his carpentry business from Western in May 1976. At that time Bjerga was operating as an individual and he purchased a "general comprehensive liability policy" for which he paid a premium of $643 per year.

In September of 1976, Bjerga, who had begun operating as Mark III Development Company, entered into a home purchase agreement with co-defendants, the Brochus. Mark III agreed to construct a home for the Brochus in a "good and workmanlike manner" for the purchase price of $100,300.

Bjerga then modified his insurance coverage with Western by listing Mark III as the insured and increasing his coverage to include, inter alia, independent contractors and "completed operations" coverage. The cost of the insurance premium increased to $2,080 in that year. Some of the specific language of the contract, exclusions and coverage, will be set forth with the discussion of the issues below.

On January 5, 1977, the Brochus "closed" on the contract and took possession of the house built by Mark III.

Three years later, in August of 1980, the Brochus filed a two-count complaint against Mark III alleging that the purchase agreement had been breached by Mark III's failure to test the soil to verify its suitability for building on, that the soil was unsuitable and the home had been sinking since the Brochus took possession, causing damage to the home and a reduction in its value. In count I the Brochus urged that Mark III had breached its contract to construct the improvements in a good and workmanlike fashion. Count II alleged the Brochus had relied on the contractual representations relative to the soil tests Mark III would perform, and they purchased the property in reliance on these representations. They contended they suffered damages as a result of the false representations of defendant, and only became aware of their loss due to the "rapid settlement of the building on unstable soils." Mark III contacted its attorney, Herbert I. Rothbart, and sent the complaint to its insurance carrier, Western.

By letter dated October 28, 1980, Western initially agreed to accept defense of the claim and told its attorney that there was coverage under the products and completed operations schedules. A copy of the letter was sent to Bjerga. Western's attorney, Sullivan, then advised Bjerga in a letter sent about two weeks later, that the defense of the claim against Bjerga was undertaken with a full reservation of Western's rights. The reservations, he stated, were based on exclusions (n) and (o) of the policy, which are discussed below. Western's attorney then assumed control of the defense of the case until October 20, 1981, when Western filed its complaint for declaratory judgment requesting that the court declare the policy issued to Bjerga did not apply to the claim brought by the Brochus.

The Brochus filed a motion for summary judgment, which was joined in by Mark III. They alleged that Western had failed to establish a genuine issue of material fact. Among other matters in the motion they alleged the exclusions (n) and (o) were unintelligible and inapplicable for reasons set forth in an accompanying memorandum of law. The trial court granted the motions. The trial court agreed with the Brochus' analysis and determined that the insurance contract should be read so as to include coverage of the instant occurrence. It found Western had waived its opportunity to assert a policy defense. Thus, it held Western was required to defend Mark III and upon a finding of liability it would be required to indemnify Mark III for damages established by the Brochus.

• 1 The "Comprehensive General Liability Insurance Policy" in issue contains 24 pages of insuring agreements, amendments, endorsements, schedules and definitions. It is a complex document. While the policy is far from a model of clear English prose, it is not ambiguous. Our review of the policy issued by Western, together with consideration of the case law which has construed similar policies, leads us to conclude that the type of property damage sustained in the instant case was excluded from coverage. The type of insurance Mark III purchased covered damage or injury to property or person of third parties injured by Mark III's product. The policy does not cover damage to Mark III's product.

Western asserts that an analysis of the policy it sold to Mark III shows that the exclusions (n) and (o) are clearly applicable to the "occurrence" Mark III seeks to defend against, and be indemnified for, if liability is found. The coverage portion of the policy provided:

"I. COVERAGE A - BODILY INJURY LIABILITY COVERAGE B - PROPERTY DAMAGE LIABILITY

The Western will pay on behalf of the insured all sums which the insured shall become legally obligated ...


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