Opinion:Home First v. Mid-Continent Casualty Co., 2022 OK CIV APP 12
Subject Matter:Insurance Policies
Date Decided:August 13, 2020; Mandate Issued on April 27, 2022
Trial Court:District Court of Cleveland County
Route to this Court:Appeal of Jury Verdict in Favor of Home First on Breach of Contract, Bad Faith, and Punitive Damages Claim.
Facts:Homeowners contacted Home First regarding an issue with a portion of the concrete stem wall in the garage which remained an issue for three years. Home First then filed a claim with Mid-Century Casualty (MCC) under its commercial general liability (CGL) policy (the Policy). MCC found there was no detectible damage to the home other than the stem wall and that the concrete in the stem wall was improperly mixed or poured so that it had too much water. As a result, MCC denied coverage, asserting that the defective stem wall did not meet the definition of property damage resulting from an occurrence and identified applicable exclusions, including contractual liability exclusion. Homeowners filed suit against Home First, in response to which Home First sent a petition to MCC with a demand to defend. MCC denied coverage and refused to defend.

Home First sued MCC for breach of contract and bad faith, then moved for partial summary judgment that MCC had a duty to defend under the Policy. The trial court granted the motion and MCC entered counsel in the Homeowner’s case. In this case, the court held separate trials for the breach of contract and bad faith claims. MCC argued there was no duty to defend because there was no resulting damage from the faulty stem wall. The trial court granted Home First’s motion for directed verdict on claim of breach of duty to defend and left damages to the jury. The jury was instructed the MCC had a duty and breached that duty. At the first trial, the jury returned a verdict assessing damages at $36,000 for breach of duty to defend, and $398,000 for breach of duty to indemnify. The second trial concerning the bad faith claim, the jury awarded punitive damages at $434,000. MCC appealed from these judgments.
Standard of Review:In reviewing a judgment on a jury verdict, the judgment will be affirmed if there is any competent evidence to support the verdict. Grumman Credit Corp. v. Rivair Flying Service, Inc., 1992 OK 133, ¶ 10. “Though this standard of review is difficult for an appellant to overcome, it comes into play only when the matter at hand was appropriately submitted to the jury in the first place. The question of whether the evidence was sufficient to have been submitted to a jury, raised by a motion for directed verdict, presents a legal issue for our consideration.” Guthrie v. Indep. School Dist. No. 1-30 of Adair County, 1998 OK CIV APP 47, ¶ 9.The Court reviewed de novo the trial court’s denial of MCC’s motion for directed verdict. Computer Publications, Inc. v. Welton, 2002 OK 50, ¶ 6.
Analysis:MCC’s main argument was that the trial court’s legal rulings were improper, and the matters should not have been submitted to the jury. MCC argued that Dodson v. St. Paul Ins. Co., 1991 OK 24 and subsequent cases on the same issue uphold that the Policy does not provide coverage for the “liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.” This is known as the “business risk” doctrine, and these cases find that the CGL policies do not cover economic loss for having to correct defective workmanship. See Dodson, supra; Hartford Accident & Indem. Co. v. Pacific Mutual Life Ins. Co., 861 F.2d 250, 253 (10th Cir. 1988); Kentucky Bluegrass Contracting, LLC v. Cincinnati Ins. Co., 2015 OK CIV APP 100, 363 P.3d 1270.

The potential liability in the underlying lawsuit arose out of the installation of the defective stem wall. From the outset of the claims made by Homeowners, MCC maintained that there was no potential of liability under the Policy because the Homeowners’ claims sought to recover the cost of repairing or replacing the defective work. If there was no potential for liability under the Policy, MCC did not have a duty to defend. See National American Ins. Co. v. Okemah Management Co., LLC, 2008 OK CIV APP 58, ¶ 12, 189 P.3d 1223. The Policy contained coverage for damages because of “bodily injury” or “property damage.” Additional exclusions provided that there would be no coverage for ” ‘property damage’ to ‘your work’ arising out of it or any part of it” or for ” ‘property damage’ to ‘impaired property’ or property that has not been physically injured arising out of . . . a defect, deficiency, inadequacy or dangerous condition in ‘your product’ or ‘your work.’ ” The Court rejected Home First’s argument that Dodson is inapplicable because the standard policy at issue has been modified because relevant case law has still cited to Dodson in similar cases. Home First’s reliance on Employers Mut. Cas. Co. v. Grayson, No. CIV-07-917-C, 2008 WL 2278593 (W.D. Okla. May 30, 2008) was denied because the Homeowners losing the ability to use their house while the defect was being fixed as property damage, but that case was distinguishable because that case did not involve defective workmanship. Because the Policy provided that a duty to defend did not exist for a suit seeking damages for property damage excluded by the Policy, the Court found that MCC owed no duty to defend Home First as a matter of law. The trial court erred in determining that MCC had a duty to defend, in denying MCC’s motion for a directed verdict, and submitting the case to the jury.
Outcome:Reversed and Remanded.
Vote:3-0. Mitchell, P.J., Goree, J. (sitting by designation), and Swinton, V.C.J. (author) concur.