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Westfield Insurance Co. v. Kroiss

April 5, 2005

WESTFIELD INSURANCE COMPANY, APPELLANT,
v.
STEPHEN J. KROISS, ET AL., D/B/A S. KROISS HOMES, RESPONDENTS.



Hennepin County District Court File No. CT 03-007669.

Considered and decided by Randall, Presiding Judge; Minge, Judge; and Wright, Judge.

SYLLABUS BY THE COURT

1. Coverage under an "occurrence" liability insurance policy is arguably triggered by and the insurer has a duty to defend the insured homebuilder in actions for damages due to faulty construction during the policy period.

2. When an insurer breaches its contractual duty to defend, the insurer is liable for attorney fees incurred by the insured in a declaratory judgment action to determine the duty to defend even if other insurers undertook the underlying legal defense.

The opinion of the court was delivered by: Minge, Judge

Affirmed in part, reversed in part and remanded

OPINION

Appellant insurer challenges the district court's finding that it had a duty to defend respondents homebuilders against lawsuits for water damages allegedly caused by defective construction. Respondents contend that the district court erred by not allowing them to recover attorney fees in the declaratory judgment action to determine appellant's duty to defend. Because we conclude that appellant breached its duty to defend, we affirm in part. Because we conclude respondents' attorney fees from the declaratory judgment action are damages arising from that breach, we reverse in part and remand.

FACTS

Respondents Stephen J. Kroiss and Stephen R. Kroiss d/b/a/ S. Kroiss Homes are in the business of residential construction. Respondents purchased commercial general liability insurance from appellant Westfield Insurance Company that covered the period from October 8, 1993 through May 15, 1995. The insurance was an occurrence policy, which included a duty to defend and to indemnify for property damage that occurred during the policy.

Seven homeowners brought actions against respondents alleging construction defects for homes built during the period when appellant's policy covered respondents. Each of these actions asserted that allegedly defective construction by respondents had caused water intrusion damage. In some of the cases, respondents attempted to remedy the problem after the homeowners moved in, but water damage was still observed at the time these lawsuits were brought. None of the complaints state when the water damage occurred.

Respondents tendered these lawsuits to appellant and appellant refused to defend the suits. Two other insurers who issued later policies agreed to defend the lawsuits, reserving their rights. After repeated requests by respondents for appellant to reconsider and assume defense of the lawsuits, appellant initiated this declaratory judgment action seeking to establish it had no duty to defend or to indemnify respondents. Respondents filed a counterclaim for a declaratory judgment that appellant owed a duty to defend and indemnify respondents, that appellant breached those duties, and that appellant owed respondents' attorney fees because it had breached its duty to defend.

The district court denied appellant's motion for summary judgment and granted respondents' motion for partial summary judgment holding that appellant had a duty to defend respondents in the underlying actions. The summary judgment order was appealed to this court, and we dismissed the appeal on jurisdictional grounds and remanded.

On remand, the district court denied respondents' motion for attorney fees and certified for interlocutory appeal to this court the question of the duty to defend. The present appeal is pursuant to that certification. In the memorandum accompanying its order, the district court stated that because attorney fees had not been granted, the respondents "suffered no damages as a direct loss incident to the breach of contract." In an affidavit, respondents' attorney attached a billing statement that indicated that respondents' attorney was required to communicate with the other insurers who had agreed to defend respondents in ...


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