Our post last week addressed the duty to defend when alleged faulty workmanship caused loss to property adjacent to where the insured was working. See Pamerin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc., 2012 Wis. App. LEXIS 698 (Wis. Ct. App. Sept. 5, 2012) [post here]. Today, we report on recent developments in the same case where the court determined, despite earlier finding the insurer owed a defense, it had no duty to indemnify. Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc., 2012 Wisc. App. LEXIS 793 (Wis. Ct. App. Oct. 10, 2012).
Hendricks contracted to "prepare the site and supply and install concrete, tamped concrete, and colored concrete" at several service stations. The owner sued Hendricks, alleging the concrete "was defective and/or the work performed was not done in a workman-like manner and resulted in damages, and will require replacement."
Pekin Insurance Company agreed to defend Hendricks subject to a reservation of rights. During discovery, the owner disclosed that only the concrete suffered physical damage, not other, adjacent property. Pekin moved for summary judgment, arguing it had to duty to indemnify or further defend because there was no policy coverage for the owner's alleged damages. Pekin argued there was no occurrence. Even if there was, the business risk exclusions k. and l. applied, precluding coverage for damage to the insured's product and work. The lower court granted summary judgment to Pekin.
The court of appeals first noted that under Wisconsin law, once the insurer agreed to defend, it could consider extrinsic evidence. If there was no arguable coverage, the court could determine on summary judgment that there was no duty to indemnify. Thus, when the court concluded there was no duty to indemnify, the insurer was relieved of its duty to further defend the insured. Because discovery demonstrated only the concrete was damaged and not the asphalt and plumbing, there was no physical injury or loss of use covered by the policy.
The court also agreed that the business risk exclusions prevented coverage for damage to Hendrick's products or completed work, i.e., the damaged concrete. Consequently, Pekin had no duty to indemnify or further defend Hendricks.
Under Hawaii law, the duty to defend is determined at the time of tender. Dairy Rd. Paterns v. Island Ins. Co., 92 Haw. 398, 423, 992 P.2d 93, 118 (2000). When analyzing the duty to defend, the insurer cannot look to extrinsic evidence to demonstrate there is no duty to indemnify, and then argue because there is no coverage, there is no longer a duty to defend. Accordingly, in the fact situation presented above, Pekin would have been obligated to continue defending Hendricks even if it had no duty to indemnify.