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Owners Insurance Company v. Equal Access Homes, Inc.

Court of Appeals of Minnesota

May 28, 2013

Owners Insurance Company, Respondent,
Equal Access Homes, Inc., Defendant, Robert Bach, et al., Appellants.


Dakota County District Court File No. 19HACV115738

Timothy Tobin, Allison M. Lange Garrison, Gislason & Hunter LLP, Minneapolis, Minnesota (for respondent)

David L. Hashmall, Matthew D. Schwandt, Felhaber, Larson, Fenlon & Vogt, P.A., Minneapolis, Minnesota; and Margo Brownell, Jesse Mondry, Insurance Law Clinic, University of Minnesota Law School, Minneapolis, Minnesota (for appellants)

Considered and decided by Stauber, Presiding Judge; Bjorkman, Judge; and Toussaint, Judge.[*]


This is an appeal from summary judgment in favor of respondent insurer in a declaratory-judgment action, in which the district court ruled that respondent's commercial general liability policy (CGL) does not cover damages awarded to appellants in an arbitration proceeding against respondent's insured. Appellants argue that the district court erred in ruling that (1) there was no "occurrence" within the meaning of the CGL policy and (2) the damages to appellant's house did not constitute "property damage" within the meaning of the CGL policy. Appellants and respondent also ask this court to rule on issues not reached by the district court. We affirm without reaching issues not decided by the district court.


In December 2001, appellant spouses Robert Bach and Karen Gunderson entered into a contract with respondent Owner's Insurance Company's (Owners) insured, Equal Access Homes, Inc. (EAH), for the construction of an accessible house in Inver Grove Heights for appellants and their daughter, who uses a wheelchair. EAH served as general contractor for the project. Following completion of the construction plans, EAH and appellants agreed to two major design changes. First, heavier natural stone, rather than lighter synthetic stone, would be used for the fireplace in the kitchen/family room area, which required additional support for the heavier load. Second, the heating, ventilation, and air conditioning (HVAC) ductwork for the swimming pool would be rerouted to the ceiling of the basement. EAH, aided by its subcontractors, completed construction in July 2002, and the city issued a temporary certificate of occupancy; appellants took occupancy of the house in August 2002 and closed on it on September 1, 2002.

In late 2002, appellants first identified floor-truss issues. On December 17, 2002, a city building official investigated and observed excessive deflection (sagging) in the floor near the stone-clad fireplace along with improper alignment of a basement support wall that EAH installed. Because EAH and appellants could not agree on the extent of the repair work, appellants hired a contractor to engineer and perform the repairs necessary to support the fireplace.

Other structural defects were also identified. EAH's framing subcontractor failed to install a structural support column called for in the original construction plans, a serious structural flaw that caused significant sagging in the floor and substantial deflection of the central beam. The framing subcontractor also installed undersized microlams and failed to install truss strongbacks, both of which were intended to provide additional support. On October 16, 2003, the city issued a correction notice to EAH, which required it to address these structural flaws, level the floors, and obtain certification of the repairs by an engineer before the city would issue a permanent certificate of occupancy.

When appellants and EAH were still unable to agree about repairs, appellants commenced an arbitration action against EAH in July 2004. Owners defended EAH under a reservation of rights. In 2009, [1] a company hired by appellants inspected the house and recommended a comprehensive scope of repair. Appellants obtained bids from two companies to perform the repairs, and EAH obtained one, the lowest bid of the three. An arbitration hearing was held in May 2011, and the arbitrator issued an award in favor of appellants. The arbitrator found that the structural failures occurred because EAH and its subcontractors performed the work negligently, in breach of contract, and in violation of Minn. Stat. §§ 327A.01-.08 (2002), the Housing and Home Improvement Statutory Warranties Act. The arbitrator also found that the proposed repairs would correct all of the major structural issues and permit the issuance of a certificate of occupancy, and the selected bid was the lowest reasonable bid. The arbitrator awarded appellants a total of $308, 553.41, which included the cost of reports and repairs, relocation costs, and attorney fees under the parties' contract. The arbitrator further ruled that the arbitration expenses were to be borne by EAH.

Shortly after the arbitration award was issued, Owners commenced this declaratory-judgment action, seeking a ruling that its CGL policy did not provide coverage for any portion of the arbitration award and/or that several "business-risk" exclusions applied. It further asserted that even if some of appellants' claims fell within the scope of coverage, it is not required to pay any portion of the arbitration award because the award failed to distinguish between covered and non-covered claims. Appellants counterclaimed, seeking a declaration that the damages awarded was covered, that no exclusions applied and that the award adequately distinguished between covered and non-covered claims as required.

Both parties moved for summary judgment. The district court granted Owner's motion for summary judgment, ruling that appellants failed to demonstrate that they suffered property damage caused by an occurrence under the policy. The court did not address whether any exclusions applied or whether the arbitration award ...

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