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Wanzek Construction, Inc. v. Employers Insurance of Wausau

August 19, 2003


Hennepin County District Court File No. CT02002593

Considered and decided by Shumaker, Presiding Judge, Wright, Judge, and Forsberg, Judge.*fn1


1. When an insurance policy provides coverage for sums that the insured is "legally obligated to pay as damages," the insured need not have had litigation commenced against it for the policy to be triggered, but is entitled to coverage based solely on a contractual duty to replace faulty building materials.

2. A contractor who is hired by a general contractor to manufacture swimming pool coping stones, which are a significant part of the prime contract and are custom made according to detailed project specifications, and who delivers the materials and provides on-site supervisory services, is a subcontractor rather than a material supplier, and qualifies for the subcontractor exception to a business-risk exclusion in a comprehensive general liability insurance policy.

The opinion of the court was delivered by: Gordon W. Shumaker, Judge

Reversed and remanded

Concurring in part, dissenting in part, Forsberg, Judge


In this declaratory-judgment action, the district court granted summary judgment to Employers Insurance of Wausau, ruling that its comprehensive general liability insurance policy does not provide coverage for faulty materials manufactured by a supplier of materials who contracted with the insured general contractor because the supplier was not a subcontractor who qualified for an exception to the policy's business-risk exclusion. The insured appealed, and the insurer sought review of the issue of whether coverage was triggered at all. Because we hold that coverage was triggered and the supplier was a subcontractor, we reverse and remand.


When the City of St. Louis Park decided to expand one of its recreational centers to include an outdoor swimming pool and an aquatics center, it hired appellant Wanzek Construction, Inc., (Wanzek) to provide all labor and material for the project.

The architect's specifications required the installation of precast polymer concrete overflow coping stones to serve as a gutter and water-collection system around the swimming pool's perimeter. The specifications described the coping stones with exacting detail as to density, strength, size, pattern, and color. Moreover, the specifications set requirements for an acceptable manufacturer of the stones as having no less than 5 years continuous experience in the fabrication of such units with required polymer materials and must demonstrate evidence of 10 successful deck-level coping installations of similar scope with at least 3 years of service.

Wanzek hired Aquatic Designs, Inc., (Aquatic) to fabricate and furnish the coping stones in accordance with the specifications. In addition, Aquatic was to create shop drawings for the architect's approval and "provide on-site supervision for 3 days or until Wanzek construction crew is capable of installation."

Wanzek built the pool and Aquatic manufactured and delivered the coping stones and supervised their installation as required by its contract.

Soon after the city opened the pool for public use, the coping stones began to crack and break under pedestrian traffic, and some pool users were injured. The city demanded that Wanzek do remedial work, as required by its contract. Wanzek in turn made the same demand of Aquatic. Aquatic refused, and Wanzek did the work and billed the city for the cost.

When the city refused to pay for the remedial services, Wanzek demanded arbitration with the city and Aquatic. Then Aquatic filed for bankruptcy, and Wanzek withdrew its arbitration demand and instead made a claim under its own commercial comprehensive general liability (CGL) insurance policy.

Respondent Employers Insurance of Wausau was Wanzek's CGL insurer. Wausau denied coverage, contending that Wanzek's claim did not trigger coverage; that this type of insurance is not available to reimburse the cost of remedying defects in workmanship; the subject of the claim was a business risk not covered by liability insurance; and the specific "Damage to Your Work" provision expressly excludes coverage.

Wanzek then brought a declaratory-judgment action against Wausau to determine coverage. Both parties moved for summary judgment.

The district court denied Wanzek's motion but granted Wausau's motion. The district court ruled that Wanzek's claim is of the type covered by the CGL policy and that, even if the business-risk exclusion applies, there is an exception to that exclusion for services supplied by a subcontractor. The court noted that the dispositive issue is whether Aquatic was a subcontractor or merely a materials supplier and concluded that Aquatic was a materials supplier, stating:

Whether Wanzek's claim is covered under the CGL policy is dependent upon the determination of whether or not Aquatic Designs occupied the role of a subcontractor in its dealings with Wanzek. * * * [t]his court finds that it did not.

Contending that the district court erred in its conclusion that Aquatic Designs, Inc., was not a subcontractor, Wanzek appealed. Although the district court granted Wausau's motion on the subcontractor issue, it denied the motion on the alternative ground that an insurer is not liable if the insured is not legally obligated to pay damages. Wausau filed a notice of review as to that alternative ground for summary judgment.


1. Does an insurance policy that provides coverage for sums that the insured becomes "legally obligated to pay as damages" cover an insured's replacement costs of faulty building materials, even though the insured has not been sued, if the insured is contractually obligated to replace such materials without regard to fault?

2. Does the insured meet the policy's exception to the "damage to your work" exclusion, resulting in the insured having coverage for replacement costs, if the property damage was done by a subcontractor, or is the insured precluded from coverage by the policy's "damage to ...

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