Hennepin County District Court File No. CT 01-008022
Considered and decided by Lansing, Presiding Judge, Kalitowski, Judge, and
An insurer that has refused to defend an underlying action retains its right to raise coverage defenses. But following entry of a default judgment, the insurer is not permitted to raise defenses in a subsequent garnishment proceeding that go to the merits of the underlying claim.
Affirmed in part, Reversed in part, and Remanded
Appellants Anthony and Tamara Parr challenge the decision by the district court granting summary judgment in favor of respondent Zurich American Insurance Company, arguing that the district court erred by finding as a matter of law that the insurer's policy with the insured does not provide coverage for appellants' loss.
Appellants entered into a contract with Midwest Cedar Timberoof (Midwest) to replace the roof on their home. Midwest hired Federico Gonzalez as a subcontractor on the project. On April 29, 1999, Zurich American Insurance Company (Zurich) issued a one-year Commercial General Liability (CGL) policy to Gonzalez. Because Gonzalez failed to make the payments on the policy, the policy was canceled on July 31, 1999.
Gonzalez performed work on appellants' roof on May 1 and 2, 1999, while the CGL policy was still in effect. After Gonzalez finished the work on the roof, appellants noticed that the vent cap on their roof was damaged. Appellants called Terry Kiefer, a salesman from Midwest, and asked Kiefer to replace the damaged vent cap. On May 18, 1999, Kiefer replaced the damaged cap. But the record indicates that Kiefer used the wrong sized cap, which resulted in a blockage of the vent pipe.
In December 1999, appellants discovered large amounts of mold behind the walls, under the floors, and in the attic of their home. This property damage was the result of excess condensation created by the obstructed vent pipe. Appellants were forced to leave the house during the clean up process and lived in temporary housing for nearly a year. Eventually the house had to be completely rebuilt, and appellants moved back into their rebuilt home at the end of 2000.
Appellants brought a cause of action for negligence against Midwest, Kiefer, and Gonzalez. In the amended complaint, appellants claimed that all named defendants were jointly and severally liable for the massive property damage. Gonzalez was personally served with the amended complaint in June 2001. And in September and October 2001, appellants sent letters to Zurich and its agents informing Zurich of the claim against Gonzalez and their intent to seek a default judgment. Zurich then wrote letters to Gonzalez in October and November 2001 requesting his cooperation with the claim. But Gonzalez never contacted Zurich, and Zurich never contacted appellants or appellants' attorneys seeking information about the claim.
After failing to hear from either Gonzalez or Zurich, appellants brought a motion for a default judgment against Gonzalez. A default judgment was entered against Gonzalez in the amount of $600,000. Subsequently, the district court issued an order allowing appellants to bring a supplemental garnishment complaint against Zurich, finding that appellants had shown probable cause that Zurich could be liable under its policy for the default judgment against Gonzalez.
Zurich has made no attempt to vacate the default judgment. Rather, at the garnishment proceeding, Zurich brought a summary judgment motion denying coverage, arguing that (1) the CGL policy was not triggered by Gonzalez's actions because any damage to appellants' home did not occur until after Gonzalez's policy with Zurich expired in July 1999; and (2) Gonzalez breached the conditions of the coverage by not cooperating and communicating with Zurich about the claim in any way.
Appellants also brought a motion for summary judgment, and on January 23, 2003, the district court issued an order: (1) stating that the default judgment established liability against Gonzalez; (2) rejecting Zurich's coverage defenses, finding that Zurich's policy with the insured was triggered when Gonzalez damaged the vent cap in May 1999 and that Zurich failed to show prejudicial effect from Gonzalez's failure to notify Zurich of the claim; and (3) concluding that the property damage to appellants' home was caused by Kiefer, not ...