The federal district court found no coverage for the insured developer after water intruded into the homeowners' basements. W. Bend Mut. Ins. Co. v. Cleland Homes, 2016 U.S. Dist. LEXIS 108030 (N.D. Ind. Aug. 16, 2016).
The underlying complaint alleged that the subdivision was designed to create a run off of ground water onto the lots where Cleland built plaintiffs' homes. The design of the subdivision and construction of the homes was defective in that the plaintiffs' homes were situated so that the water table underneath their homes was so high that their basements flooded and damage occurred to the structure of their homes. Cleland was allegedly negligent in designing and/or constructing the homes or negligent in the water drainage plan for the subdivision.
West Bend filed suit for declaratory judgment against Cleland and the homeowners. Cleland did not participate in the coverage litigation. Cross motions for summary judgment were filed.
West Bend first argued the contractual liability exclusion barred coverage. West Bend contended in the absence of obligations assumed under the sales contracts, Cleland would have no liability to the homeowners for the diminished value or structural damage claims. But West Bend failed to provide copies of such sales contracts as part of its motion. The court declined to grant summary judgment based on inferences regarding duties from an unknown sales contract. It was possible that Cleland was not even a party to the sales contracts.
West Bend's second argument based upon the "your work" exclusion was more successful. The exclusion provided that the policy did not apply to "'Property damage' to 'your work' arising out of it or any part of it and included in the 'products completed operations hazard.'" The exclusion did not apply if the damaged work or the work out of which the damage arose was performed on the insured's behalf by a subcontractor. The court explained that, in simplified terms, the products completed operations hazard was defined as bodily injury or property damage that occurs away from premises that the insured owns or rents, and which arises from the insured's work. Thus, property damage to a completed home sold by the insured to a third party which was caused by the insured's work would be included in the "products completed operations hazard." The homeowners' claimed property damage, consisting of erosion under the foundations and decreased homes values, was property damage to Cleland's completed work caused by Cleland's faulty construction.
The homeowners argued that the concrete basement/foundations for the homes was poured by a subcontractor. Therefore, the exception to the your work exclusion applied.
The court rejected the homeowners' argument. The homeowners were alleging that the subdivision was designed with a negligent drainage plan creating a run-off of water onto their properties. The allegations did not point to any defective work performed by the subcontractor, and the damaged work was the houses as a whole, because erosion was occurring under their foundations. Further, the homeowners did not have any evidence that the subcontractor had any part in Cleland's decision to site every home in their locations so as to create the water problems.
Consequently, West Bend's motion for summary judgment was granted while the homeowners' motion was denied.
