1. The extent to which a standard form commercial general liablity insurance policy covers the business risk of the insured must be determined from the specific terms of the insurance contract.
2. The standard exclusion for property damage to "your product" does not apply to a swimming pool construction project because of the exception for "real property."
3. The standard exclusion for property damage to "your work" does not apply to damage caused by a materials supplier who custom fabricates the materials to the owner's specifications and who provides on-site supervisory services because of the exception for the work of a "subcontractor."
Heard, considered, and decided by the court en banc.
The opinion of the court was delivered by: Hanson, Justice.
Respondent Wanzek Construction, Inc. (Wanzek) was the general contractor for the construction of a municipal swimming pool. It incurred costs to replace coping stones that were manufactured by Aquatic Designs, Inc. (Aquatic). It brought this action against its insurer, appellant Employers Insurance of Wausau (Wausau), for indemnity under a comprehensive general liability insurance policy (CGL). Wausau moved for summary judgment under the business-risk doctrine, arguing that the risk that an insured's product will not meet contractual standards is a business risk that is not covered by a general liability policy. It relied on two policy exclusions that preclude coverage for damage to "your property" and "your work." The district court granted summary judgment to Wausau, concluding that Aquatic was not a "subcontractor" and therefore the "your work" exclusion applied. The court of appeals reversed, holding that Aquatic fulfilled the "subcontractor exception" to the "your work" exclusion. Wanzek Construction, Inc. v. Employers Ins. of Wausau, 667 N.W.2d 473, 475 (Minn. App. 2003). We affirm.
Wanzek was awarded a contract by the City of St. Louis Park to construct a new swimming pool. The architect's specifications required Wanzek to provide materials, labor, equipment, and services needed to furnish and install precast pool coping stones to cover perimeter overflow. The specifications detailed the required density, strength, size, pattern, and color of the coping stones, and also mandated that the "manufacturer" of the coping stones have:
[N]o 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's contract with the City specified that the "manufacturer" of the coping stones must be either "Aquatic Design" or "Kinematics, Ltd."
Wanzek entered into a Standard Purchase Agreement with Aquatic requiring Aquatic to "furnish and pay for all supervision, labor, materials, tools, equipment, services, and all other items necessary or required to fully * * * prepar[e], design, fabricat[e], treat, stor[e], and deliver * * * overflow coping stones." An attachment to the purchase agreement required Aquatic to create shop drawings, specified a delivery date for the coping stones, and required Aquatic to provide onsite supervision of Wanzek employees for either 3 days of installation or until the Wanzek employees felt capable of installation.
When the swimming pool opened for use, patrons were injured as a result of the cracking of a large number of the coping stones. The City demanded that Wanzek replace the failed stones. Wanzek made the same demand of Aquatic, but when Aquatic refused, Wanzek was forced to replace the coping stones at a cost of $164,162.24. When Aquatic filed for bankruptcy, Wanzek submitted a claim under its CGL policy with Wausau.
Wausau denied Wanzek's claim, contending that the insurance did not cover the cost of remedying defects in workmanship because the exclusion for damage to "your work" in the CGL insurance policy precluded coverage. Wanzek, 667 N.W.2d at 476. Wanzek then brought a declaratory judgment action against Wausau to determine coverage. Id. The district court granted summary judgment in favor of Wausau, holding that Aquatic was not a subcontractor and therefore the "your work" exclusion applied. The court of appeals reversed, holding that Aquatic was a subcontractor and the "your work" exclusion did not apply. Wanzek, 667 N.W.2d at 475. We granted Wausau's petition for review.
On review of a grant of summary judgment, this court determines whether there are any genuine issues of material fact and whether the district court erred in applying the law. Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002). The interpretation of an insurance policy is a question of law reviewed de novo. Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn. 2001). When insurance policy language is clear and unambiguous, "the language used must be given its usual and accepted meaning." Lobeck v. State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn. 1998) (citing Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960)). If policy language is ambiguous, it must be interpreted in favor of coverage. Nordby v. ...