Hudson Hardware Plumbing & Heating, Inc. v. Amco Insurance Company

IN THE COURT OF APPEALS OF IOWA

No. 15-1677
Filed October 12, 2016

HUDSON HARDWARE PLUMBING & HEATING, INC.,
Plaintiff-Appellant,

vs.

AMCO INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Black Hawk County, George L.

Stigler, Judge.

Plaintiff-subcontractor appeals the district court’s grant of summary

judgment in favor of the defendant-insurer, finding the commercial general

liability policy issued by the insurer did not cover claims asserted against the

subcontractor or general contractor under its policy because the alleged

damages were not caused by an “occurrence” within the meaning of the policy.

REVERSED AND REMANDED WITH INSTRUCTIONS.

Brandon J. Gray of Redfern, Mason, Larsen & Moore, PLC, Cedar Rapids,

for appellant.

Stephen J. Powell and Dustin T. Zeschke of Swisher & Cohrt, P.L.C.,

Waterloo, for appellee.

Heard by Potterfield, P.J., and Doyle and Tabor, JJ.
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DOYLE, Judge.

The underlying declaratory judgment action was precipitated by a

commercial construction dispute and resulting civil actions. In this appeal, we

are asked to review the district court’s grant of summary judgment finding the

commercial general liability policy issued by the insurer did not cover the claims

asserted against the subcontractor or general contractor under its policy because

the alleged damages were not caused by an “occurrence” within the meaning of

the policy. Because we agree the district court erred in its interpretation, we

reverse and remand the case back to the district court for further proceedings.

I. Undisputed Facts and Relevant Proceedings.

In December 2008, the Cedar Bend Humane Society (CBHS) contracted

with the Samuels Group, Inc. (SG) to design and build CBHS’s new animal

adoption facility. SG then subcontracted various parts of the project to others.

The production of the design plans for the project’s plumbing and heating,

ventilation, and air conditioning (HVAC) systems was subcontracted to Bracket

Engineering Consulting, LLC (Engineering). SG also subcontracted with Hudson

Hardware Plumbing & Heating, Inc. (Hudson) to “[p]rovide engineering, labor,

material and equipment to design and install” the HVAC and plumbing systems

for the project. The window materials and their installation was subcontracted to

Allen Glass Co., Inc. (Glass).

Hudson’s subcontract with SG obligated Hudson to procure commercial

general liability (CGL) insurance to cover Hudson’s indemnity obligations under

its subcontract, and SG was to be named as an insured. Hudson then obtained
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the required policy from AMCO (Policy). That Policy and its standard CGL policy

language are the heart of this matter, which we will further discuss below.

“After the [construction] work was performed, [CBHS] noticed mold,

excess humidity, and excess odor in the building,” allegedly caused by faults

“with the design and installation of the HVAC system.” CBHS subsequently sued

SG, Engineering, Hudson, and Glass (collectively Defendants) for breach of

contract (Suit). CBHS’s petition specifically asserted Defendants:

a. Failed to design and install a [HVAC] system in the CBHS
facility which provided adequate quantities of heat, cooling and
ventilation to the CBHS facility, contrary to the Contract;
b. Failed to or were unable to make repairs to the [HVAC]
system in the CBHS facility, thereby depriving the CBHS of a
functioning [HVAC] system which met the contract specifications
set forth [in] the Contract;
c. Failed to properly install windows in the CBHS facility
which resulted in water damage, contrary to the Contract; and
d. Failed to or were unable to make repairs to the windows in
the CBHS facility, thereby depriving the CBHS of properly
functioning windows which met the contract specifications set forth
in the Contract[.]

CBHS alleged that, as a direct and proximate cause of the breach by

Defendants, it “incurred substantial expense to renovate, rework and repair the

[HVAC] system and the windows negligently installed by Defendants so as to

provide adequate amounts of heating, air conditioning and ventilation to the

CBHS facility and to provide properly installed windows in the CBHS facility.” In

its answer, SG asserted third-party claims against Engineering, Glass, and

Hudson.

Hudson filed a claim with AMCO, seeking coverage of Hudson and SG in

the Suit under the Policy. AMCO denied the claim because its “investigation

show[ed] that there was no occurrence as defined by [the Policy] and therefore
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no grant of coverage exist[ed] for this loss.” AMCO also explained that its

“review showed that . . . the damages being claimed by [CBHS] d[id] not meet

the definition of an ‘occurrence’ or ‘property damage’ as defined in [the Policy].”

In a separate action, Hudson filed a petition for declaratory judgment

against AMCO, asking the court to declare that AMCO was “obligated to provide

coverage to Hudson and [SG] for defense and indemnification in the [Suit], and

any related causes of action, under the terms of the [Policy, and] to reimburse

Hudson for expenses” incurred in its defense. AMCO answered and denied the

Policy covered the claims asserted against Hudson or SG in the Suit, and it

argued it was therefore not required to defend Hudson or SG in the Suit.

Dueling motions for summary judgment were filed by the parties.

Following a hearing on the motions, the district court entered its ruling, granting

AMCO’s motion, denying Hudson’s motion, and dismissing Hudson’s declaratory

judgment action. Relying upon the case then most relevant, Pursell

Construction, Inc. v. Hawkeye-Security Insurance Co., 596 N.W.2d 67, 69 (Iowa

1999), the district court found AMCO had no duty to defend or indemnify Hudson

or SG.

Hudson now appeals.

II. Standard of Review.

We review a summary judgment ruling interpreting an insurance policy for

correction of errors at law. See Amish Connection, Inc. v. State Farm Fire &

Cas. Co., 861 N.W.2d 230, 235 (Iowa 2015). A grant of summary judgment is

only proper if no genuine issue of material fact exists and the moving party is

entitled to judgment as a matter of law. See Iowa R. Civ. P. 1.981(3); Villarreal v.
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United Fire & Cas. Co., 873 N.W.2d 714, 719 (Iowa 2016). If the dispute

concerns only the legal consequences of undisputed facts, summary judgment is

appropriate. See Nelson v. Lindaman, 867 N.W.2d 1, 6 (Iowa 2015). But, if the

dispute involves facts that might affect the outcome of the suit, given the

applicable governing law, an issue of “material” fact exists. See id. “We view the

evidence in the light most favorable to the nonmoving party, who is entitled to

every legitimate inference that we may draw from the record.” Id. at 6-7.

III. Discussion.

With that standard in mind, we turn to the general principles concerning

insurance policies. “Insurance coverage is a contractual matter” governed by the

provisions set out in the policy. Talen v. Emp’rs Mut. Cas. Co., 703 N.W.2d 395,

402 (Iowa 2005). Under Iowa law, the intent of the parties, as determined by the

language of the insurance policy, controls the interpretation of the policy. See

Nationwide Agri-Bus. Ins. Co. v. Goodwin, 782 N.W.2d 465, 470 (Iowa 2010).

This requires determining “the meaning of the words that govern its legal effect.”

See Nat’l Sur. Corp. v. Westlake Inv., LLC, 880 N.W.2d 724, 733 (Iowa 2016)

(Westlake).

We note that the Policy’s provisions and language at issue here arise from

a contract that is now standard in the liability industry. See id.; Scott C. Turner,

Insurance Coverage of Construction Disputes § 1:5 (2d ed.) (Turner). Despite

the standardization, it has been said that determining whether there is coverage

of claims for the cost to repair or replace defective construction work or products

is “the most controversial and difficult of all.” Turner § 2.46. Because the CGL

policies generally have the same standardized language, the same issues have
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been litigated in just about every jurisdiction, sometimes with contrary results.

See Christopher C. French, Construction Defects: Are They “Occurrences”?, 47

Gonz. L. Rev. 1, 3 (2012); see also Philip L. Bruner and Patrick J. O’Connor, Jr.,

Bruner & O’Connor Construction Law § 11:200 (2016); James Duffy O’Connor,

Construction Defects: “Property Damage” and the Commercial General Liability

Policy, 24 Constr. L. 11 (Spring 2004).

Generally speaking, CGL policies, like the one here, contain an insuring

agreement, which “is the core provision of the entire policy, setting forth both the

insurer’s obligation to pay liabilities and its obligation to defend claims made

against the insured.” See Turner § 1:13; see also Pursell, 596 N.W.2d at 69

(discussing parts of CGL policies). “After the insuring agreement ‘giveth,’ the

exclusions ‘taketh away.’” Turner § 1:14. That is, CGL policies also have

“exclusions that take away some of this coverage.” Pursell, 596 N.W.2d at 69.

On top of that, there are generally exceptions to the exclusions. See Westlake,

880 N.W.2d at 739. Consequently, “[t]o determine if an insurance policy affords

coverage under a particular set of circumstances, we generally look first to the

insuring agreement, then to the exclusions and the exceptions to the exclusions.”

Id.; see also Amish Connection, 861 N.W.2d at 240. If a term is not defined in

the policy, we use its ordinary meaning—one a reasonable, ordinary person

would use. See Westlake, 880 N.W.2d at 734. However, an “undefined term in

an insurance policy must be construed in light of the entire policy, including any

exclusions.” Id. at 735.
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A. Insuring Agreement.

As noted above, most insuring agreements set forth an insurer’s two main

obligations: the duty to defend and the duty to indemnify. See Turner § 1:13.

While “[t]he two duties are clearly coextensive,” see Yegge v. Integrity Mut. Ins.

Co., 534 N.W.2d 100, 102 (Iowa 1995),

the duty to defend is said to be a separate, distinct and
independent obligation of the insurer. Whereas the duty to
indemnify is dependent on the findings in the underlying case and
therefore is usually not determined until the conclusion of that
action, the duty to defend is determined at the very outset.

Turner § 7:1. However, because of the complexity of claims concerning

defective construction work, the pleadings in the underlying case are generally,

“of necessity, [pled] very broadly,” making the duty-to-defend determination

complicated. See id. § 1:2. “As such, when faced with a general pleading,

defense coverage should be triggered in most cases as indemnity coverage

cannot be ruled out.” Id. § 2.46. Thus, the duty to defend is said to be broader

than the duty to indemnify. See United Fire & Cas. Co. v. Shelly Funeral Home,

Inc., 642 N.W.2d 648, 656 (Iowa 2002). Ultimately,

the duty to defend rests solely on whether the petition contains any
allegations that arguably or potentially bring the action within the
policy coverage. If any claim alleged against the insured can
rationally be said to fall within such coverage, the insurer must
defend the entire action. In case of doubt as to whether the petition
alleges a claim that is covered by the policy, the doubt is resolved
in favor of the insured.

Id. at 656-57 (citation omitted). “[I]t is permissible for a liability insurer, in

determining whether to accept a tendered defense to consider facts beyond the

allegations of the petition.” Talen, 703 N.W.2d at 405. But the “insurer has no

duty to defend ‘if after construing both the policy in question, the pleadings of the
8

injured party and any other admissible and relevant facts in the record, it appears

the claim made is not covered by the indemnity insurance contract.’” Id. at 406

(citation omitted); see also Turner § 2:1 (noting “breach of contract claim against

the insured triggers the insurer’s duty to defend unless both the face of the claim

or complaint and a thorough investigation of the facts reveal that the claim cannot

possibly include a claim for any item of covered damages”).

The Policy’s insuring agreement, which includes both the duty-to-

indemnify and duty-to-defend language, stated:

a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of . . . “property damage” to
which this insurance applies. We will have the right and duty to
defend the insured against any “suit” seeking those damages.
However, we will have no duty to defend the insured against any
“suit” seeking damages for . . . “property damage” to which this
insurance does not apply. We may, at our discretion, investigate
any “occurrence” and settle any claim or “suit” that may result.
....
b. This insurance applies to . . . “property damage” only
if . . . “property damage” is caused by an “occurrence” . . . .

See also Westlake, 880 N.W.2d at 732-33 (discussing substantively similar CGL

policy language). The Policy contained definitions of the words contained in

quotation marks, which were also substantively similar to the standard CGL

policy definitions. See also id. The Policy defined “property damage” as

a. Physical injury to tangible property, including all resulting
loss of use of that property. All such loss of use shall be deemed to
occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically
injured. All such loss of use shall be deemed to occur at the time of
the “occurrence” that caused it.

See also id. at 733. An “occurrence” was defined as “an accident, including

continuous or repeated exposure to substantially the same general harmful
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conditions.” See also id. at 732. The term “accident” is generally not defined in

standard CGL policies, and it was not defined in this Policy. See id. at 735.

However, our supreme court has addressed this issue and concluded “that in the

context of a modern standard-form CGL policy containing an exclusion

precluding coverage for property damage ‘expected or intended from the

standpoint of the insured,’”—which is the case here—“the term ‘accident’ means

‘an unexpected and unintended event.’” Id. Substituting the relevant definitions

into the insuring agreement, AMCO agreed to defend Hudson and SG against

any suit seeking damages for physical injuries to, or loss of use of, tangible

property that were caused by an unexpected and unintended event. See, e.g.,

id. at 732-36.

In its motion for summary judgment, AMCO’s initial argument was two-

fold. AMCO first asserted that the Suit was not seeking damages for injuries to

tangible property. Additionally, AMCO argued that there was no “occurrence” as

a matter of law, citing Pursell; our own unpublished case, W.C. Stewart

Construction, Inc. v. Cincinnati Insurance Co, No. 08-0824, 2009 WL 928871, at

*3-4 (Iowa Ct. App. Apr. 8, 2009), which relied upon Pursell to reach the

conclusion there was no “occurrence”; and an Eighth Circuit case that interpreted

Iowa law and relied upon Pursell and W.C. Stewart to determine there was not

an “occurrence.” See Pursell, 596 N.W.2d 70-73 (discussing CGL policies and

the term “occurrence”); see also Liberty Mut. Ins. Co. v. Pella Corp., 650 F.3d

1161, 1176 (8th Cir. 2011) (discussing Pursell and W.C. Stewart, 2009 WL

928871, at *2-3). Like the Eighth Circuit in Liberty Mutual, the district court here

relied upon Pursell and W.C. Stewart in reaching its conclusion that, “[b]y
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definition, the alleged defective workmanship performed by [Hudson] was not the

result of a sudden event and thus not the result of an ‘accident’ covered by [the

Policy].” Having reached that conclusion, it was not necessary for the court to

address AMCO’s “property damage” argument, but AMCO reasserts that

argument here in the alternative. See Duck Creek Tire Serv., Inc. v. Goodyear

Corners, L.C., 796 N.W.2d 886, 893 (Iowa 2011) (“It is well-settled law that a

prevailing party can raise an alternative ground for affirmance on appeal without

filing a notice of cross-appeal, as long as the prevailing party raised the

alternative ground in the district court.”). Consequently, we begin our discussion

with the “occurrence” argument.

1. Was There an Occurrence?

Until recently, the leading Iowa case on the matter was Pursell. See

Westlake, 880 N.W.2d at 736 (discussing Pursell, 596 N.W.2d at 67). In Pursell,

the Iowa Supreme Court

considered whether a CGL policy covered damages arising from
breach-of-contract and negligence claims brought against an
insured who failed to construct two houses in a floodplain at the
elevation required by city ordinance, thereby causing the houses to
be uninhabitable. We treated the claim against the insurer as one
for the cost of repairing the insured’s own defective workmanship,
as the claimed damages were the cost of raising the elevation of
the houses by approximately two feet. We concluded the policy did
not cover the cost of repairing an insured’s own defective work
product because “defective workmanship standing alone, that is,
resulting in damages only to the work product itself, is not an
occurrence under a CGL policy.” In arriving at this conclusion, we
reasoned that interpreting the policy to cover repairs to the
insured’s own defective workmanship would convert the insurer into
“a guarantor of the insured’s performance” on a contract, causing
the policy to take on “the attributes of a performance bond.”

Id. at 736-37 (discussing Pursell, 596 N.W.2d at 67-71).
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Recently, the court revisited the “occurrence” definition discussion in

Westlake, 880 N.W.2d at 724, which was decided after the district court’s

summary judgment ruling at issue here. In Westlake, an insurer appealed the

district court’s rulings in a declaratory judgment action that found “defective work

performed by an insured’s subcontractor may constitute an occurrence under the

policy” and instructed “the jury to determine whether the claimed damages arose

due to an ‘accident’ constituting an ‘occurrence’ under the policy by considering

‘the viewpoint of the insureds and what they intended or should reasonably have

expected.’” Id. at 727. Finding no error, the court1 revisited the definition of

“accident” in the context of CGL policies, stating:

An intentional act resulting in property damage the insured did not
expect or intend qualifies as an accident amounting to an
occurrence as defined in a modern standard-form CGL policy so
long as the insured did not expect and intend both the act itself and
the resulting property damage.
Considered from the standpoint of the insured, “a deliberate
act, performed negligently, is an accident if the effect is not the
intended or expected result; that is, the result would have been
different had the deliberate act been performed correctly.”
Accordingly, an intentional act does not constitute an accident that
qualifies as an occurrence covered by a modern standard-form
CGL policy when the resulting harm “was the natural and expected
result of the insured’s actions, that is, was highly probable whether
the insured was negligent or not.”

Id. at 736 (citations omitted). The court went on to reject the insurer’s argument

that Pursell stood for the proposition that “defective workmanship never

constitutes an accident or an occurrence under Iowa law.” Id. at 736-37

(emphasis added). Noting Pursell only concerned damages to an insured

contractor’s own defective work product, the court found its holding in Pursell

1
We note there was a strong dissent in Westlake by three of the seven Justices of the
Iowa Supreme Court. See Westlake, 880 N.W.2d at 744-51.
12

“was limited by its plain language to situations in which the insured performed

defective work and sought coverage for the cost of repairing the defective work

product.” Id. at 737-38. The court “interpret[ed] the insuring agreement in the

modern standard-form CGL policy as providing coverage for property damage

arising out of defective work performed by an insured’s subcontractor unless the

resulting property damage is specifically precluded from coverage by an

exclusion or endorsement.” Id. at 740. Under the facts and policy in that case,

the court concluded “the defective work performed by the insureds’

subcontractors [fell] within the definition of ‘occurrence’ in the insuring agreement

appearing in the . . . policy.” Id.

Though the court did not overrule Pursell, the majority’s holding in

Westlake was a bit of a game changer. See Westlake, 880 N.W.2d at 744

(Waterman, J., dissenting) (“The majority disregards [the Eighth Circuit’s

persuasive decision in Liberty Mutual that is] directly on point and instead relies

on inapposite Iowa authority finding liability coverage for a landlord’s negligent

supervision of an employee who flashed tenants.” (citing Shelly Funeral Home,

642 N.W.2d at 651)). Comparing the facts in Pursell—as distinguished by the

majority in Westlake—with those here, it is clear that the claims in the Suit are

not solely claims for damages by Hudson based upon Hudson’s alleged defective

work product. In discovery in the Suit, CBHS’s president elaborated upon

CBHS’s claims in her affidavit:

After the work was performed, [CBHS] noticed mold, excess
humidity, and excess odor in the building. [CBHS] alleges that the
negligence and/or breach of contract of the [SG] and/or the named
subcontractors caused ventilation problems in the animal care and
adoption building.
13

[CBHS] later hired [an expert] to review the construction and
documentation associated with the completion. [The expert’s]
report [found] fault with the design and installation of the HVAC
system and stat[ed] that the mold, excess humidity, and excess
odor were the result.
As a result of the mold, excess humidity and excess odor
[CBHS] alleges was caused by the negligence of the [SG] and/or
the named subcontractors, [CBHS] has incurred expenses to
remediate the mold, excess humidity and excess odor and to
perform certain other repairs and/or improvements to the animal
care and adoption building.

The report “found five principle areas where [CBHS] incurred both tangible and

intangible costs as a result of design or construction failures,” and it listed the

following damages and related costs:

• HVAC System Design & Installation Deficiencies
HVAC repairs, controls, & Reznor replacement $ 232,002
Temporary HVAC $ 8,417
Engineering costs $ 30,807
Related roofing & curb installations $ 8,987
Related construction costs $ 13,976

• Site Drainage & Building Moisture
Migration
Window repair $ 4,500
Window replacement $ 70,902

• Ceilings & Building Material Choices
Ceilings $ 7,429
Walls & floors $ 60,482

• Plumbing Fixtures valued at $ 40,000

• Loss of Value
LEED certification. valued at $ 17,000
Construction delays

Given the broad pleadings in the Suit and CBHS’s claimed damages to the

ceilings, walls, floors, windows, and the roof, among other things, viewing the

evidence in the light most favorable to Hudson, it is possible—if not definite—that

CBHS claims defective workmanship by Hudson caused damages beyond its
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own work that Hudson did not expect or intend, potentially constituting an

“accident” that is an “occurrence” within the meaning of the Policy. Stated

another way, there is the potential, given the facts alleged in the Suit, that the

events were “unexpected.” The district court erred in concluding otherwise.

2. Was There Property Damage?

Because we find the court erred in finding there could be no “occurrence”

under the Policy, we must address AMCO’s argument the damages alleged in

the Suit do not fall within the definition of “property damage” in the Policy. Citing

Yegge, 534 N.W.2d at 101, AMCO claims the only damages asserted are

intangible economic losses that are not covered under the Policy’s definition.

However, viewing the record in the light most favorable to Hudson, CBHS’s

claims are not merely claims for “faulty workmanship” or for the cost to finish

unfinished work. Rather, the damages alleged, as set out in the expert’s report,

include damages to tangible property beyond the work product itself, such as the

walls. We think, at this stage and given our standard of review, Hudson has

shown the claims in the Suit include claims of “property damage” within the

meaning of the Policy.

Because the claims against Hudson in the Suit include claims against

Hudson for “property damage” caused by an “occurrence” within the meaning of

the Policy, we conclude the claims in the Suit are covered under the Policy’s

insuring agreement.

B. Exclusions.

Having determined that the claims in the Suit are covered under the

Policy’s insuring agreement, we next turn to the final two steps in our analysis in
15

which we examine the Policy’s pertinent exclusions and then, if applicable, any

exceptions to those exclusions. “Insurers relying on exclusions from coverage

have the burden to prove their applicability,” and, if “an insurer has ‘affirmatively

expressed coverage through broad promises, [it] assumes a duty to define any

limitations or exclusionary clause in clear and explicit terms.’” Farm Bureau Life

Ins. Co. v. Chubb Custom Ins. Co., 780 N.W.2d 735, 742 (Iowa 2010) (alteration

in original) (citation omitted). “We construe exclusions strictly against the

insurer.” Amish Connection, 861 N.W.2d at 236.

The Policy’s exclusions are set forth in several pages and are substantially

the same as the standard CGL policy contract. The exclusions at issue here are

almost identical to those in Westlake, so we need not set them out here. See

880 N.W.2d at 732-33.

In Westlake, the CGL policy in question was issued by the insurer to the

general contractor, and the claims for which the general contractor sought

indemnification was based upon the defective work of the general contractor’s

subcontractor. See id. at 739. Considering the same exceptions, the court

concluded the policy in its case “plainly contemplate[d] coverage for some

property damage caused by defective work performed by an insured’s

subcontractor.” Id. The court reasoned that interpreting the CGL policy “so

narrowly as to preclude coverage for all property damage arising from negligent

work performed by an insured’s subcontractor would be unreasonable in light of

the exceptions and exclusions the [the CGL policy] contains.” Id. The court

explained:
16

[T]he policy’s “your work” exclusion generally excludes from
coverage property damage arising out of completed work
performed by or on behalf of the insured. However, the exclusion
contains an exception indicating property damage to work
performed on behalf of the insured remains compensable assuming
no other coverage exclusion applies if it was performed by the
insured’s subcontractor. Specifically, it states the “your work”
exclusion does not apply if “the damaged work or the work out of
which the damage arises was performed . . . by a subcontractor” on
behalf of the insured. The effect of this subcontractor exception to
the “your work” exclusion is to preserve coverage the “your work”
exclusion would otherwise negate.
....
We think a reasonable ordinary person who read the modern
standard-form CGL policy containing the subcontractor exception to
the “your work” exclusion in its entirety would believe it covered
defective work performed by the insured’s subcontractor unless the
resulting property damage was specifically precluded from
coverage by an exclusion or endorsement. Accordingly, we
interpret the insuring agreement in the modern standard-form CGL
policy as providing coverage for property damage arising out of
defective work performed by an insured’s subcontractor unless the
resulting property damage is specifically precluded from coverage
by an exclusion or endorsement. In addition, we conclude the
defective work performed by the insureds’ subcontractors falls
within the definition of “occurrence” in the insuring agreement
appearing in the [policy at issue here].

Id. at 739-40 (alteration in quoted text in original) (internal citations and footnotes

omitted).

Here, the Policy insures Hudson and then SG as an additional insured.

Though the insureds’ positions here are different from Westlake, we do not think

the differences distinguish this case from the conclusion reached by the court in

Westlake. As one text explains, the “your work” exclusions in standard CGL

policies “are intended to eliminate coverage for the cost of repairing or replacing

the insured’s faulty work or product, but they do not eliminate coverage for the

damage caused by the insured’s faulty work or product.” Turner § 11:10. In
17

Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 791 (N.J. 1979), a case regularly

cited across jurisdictions, liability policies were explained to work as follows:

The consequence of not performing well is part of every business
venture; the replacement or repair of faulty goods and works is a
business expense, to be borne by the insured-contractor in order to
satisfy customers.
There exists another form of risk in the insured-contractor’s
line of work, that is, injury to people and damage to property
caused by faulty workmanship. Unlike business risks of the sort
described above, where the tradesman commonly absorbs the cost
attendant upon the repair of his faulty work, the accidental injury to
property or persons substantially caused by his unworkmanlike
performance exposes the contractor to almost limitless liabilities.
While it may be true that the same neglectful craftsmanship can be
the cause of both a business expense of repair and a loss
represented by damage to persons and property, the two
consequences are vastly different in relation to sharing the cost of
such risks as a matter of insurance underwriting.
....
An illustration of this fundamental point may serve to mark
the boundaries between “business risks” and occurrences giving
rise to insurable liability. When a craftsman applies stucco to an
exterior wall of a home in a faulty manner and discoloration, peeling
and chipping result, the poorly-performed work will perforce have to
be replaced or repaired by the tradesman or by a surety. On the
other hand, should the stucco peel and fall from the wall, and
thereby cause injury to the homeowner or his neighbor standing
below or to a passing automobile, an occurrence of harm arises
which is the proper subject of risk-sharing as provided by the type
of policy before us in this case. The happenstance and extent of
the latter liability is entirely unpredictable the neighbor could suffer
a scratched arm or a fatal blow to the skull from the peeling
stonework. . . . [I]njury to persons and damage to other property
constitute the risks intended to be covered under the CGL [policy].

Weedo, 405 A.2d at 791-92 (citations omitted).

Because the Suit is still pending, no conclusions have been reached as to

who, if anyone, caused damages as alleged in the Suit. Viewing the record in

the light most favorable to Hudson, the damages alleged are not simply for “the

work” of Hudson or SG such that exclusion is absolute. Rather, the pleadings in
18

the Suit clearly contemplate damages caused by Hudson to other property and

may fall outside the exclusion or within the exception to the exclusion such that

coverage exists.

We also think this interpretation is supported by the language in the

subcontract between SG and Hudson. While that contract is not binding here, it

is informative of Hudson and SG’s intent. Hudson was required to obtain

“contractual liability insurance covering [Hudson’s] indemnity obligations under

[the subcontract].” The indemnity obligations required Hudson to

defend, indemnify and hold harmless [CBHS, the owner, SG
Design, the architect, SG, the contractor] (including its affiliates,
parents and subsidiaries) and other contractors and subcontractors
and all their agents and employees from and against all claims,
damages, loss and expenses . . . arising out of or resulting from the
performance of Subcontractor’s Work including, but not limited
to: (a) any such claim, damage, loss, or expense [that] is
attributable to bodily injury, . . . or to injury to or destruction of
tangible property (other than Subcontractor’s Work itself) including
the loss of use resulting therefrom, to the extent caused in whole or
in any part by any negligent act or omission of Subcontractor or
anyone directly or indirectly employed by Subcontractor or anyone
for whose acts Subcontractor may be liable; and (b) such obligation
shall not be construed to negate, or abridge, or otherwise reduce
any other right or obligation of indemnity which would otherwise
exist as to any party or person described [here]. Loss or damage
due to acts of Subcontractor will be deducted from the amounts
otherwise due Subcontractor.

Hudson was also required “to obtain, maintain and pay for such [CGL] insurance

coverage and endorsements as will insure the provisions of this subcontract.”

Additionally, the subcontract mandated that Hudson obtain an additional insured

endorsement adding SG as an insured to the policy, with SG receiving “all the

same rights and insurance coverage under the [policy] including coverage for

completed operations as given [to Hudson].” These terms indicate that SG
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wanted to lessen its risk from claims for damages based upon its subcontractor’s

negligence, and it clearly contemplates that its subcontractor’s own work would

not be insured. The terms of the subcontract support the conclusion that the

“your work” exclusion was not intended to exclude damages to other property

caused by the subcontractor’s own “work.”

Viewing the record in the light most favorable to Hudson, we conclude the

claims alleged in the Suit against Hudson and SG may not fall within an

exclusion or may fall within an exception to an exclusion such that the claims are

covered under the Policy, requiring AMCO to defend Hudson and SG in the Suit.

C. Duty to Indemnify.

Briefly, we note Hudson requested in its petition for declaratory judgment

and its summary judgment motion that it also be declared that AMCO has a duty

to indemnify Hudson and SG. At this time, we conclude genuine issues of

material fact exist precluding such a declaration. It is conceivable that the fact-

finder will determine the damages were caused by Hudson’s defective

workmanship but the damages were only to its own work, such that there was no

“accident” or “occurrence.” Similarly, it is also possible that, once facts and

damages are determined, the damages fall under one of the Policy’s exclusions

precluding coverage. We are not commenting on the validity of CBHS’s claims

or the quality of Hudson’s workmanship. Simply, it is impossible to determine the

basis, if any, upon which CBHS will recover until that action is completed. See

Emp’rs Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639, 642

(Iowa 1996). Consequently, whether AMCO has an indemnification duty cannot

be determined at this time.
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IV. Conclusion.

In sum, Hudson has shown, as a matter of law, AMCO owed it and SG a

defense duty in the underlying action for claims asserted by CBHS. However,

neither AMCO nor Hudson have established whether AMCO has a duty to

indemnify Hudson or SG at this time. Accordingly, we reverse the district court’s

summary judgment ruling finding AMCO had no duty to defend or indemnify

Hudson or SG. We remand the case for the district court to enter summary

judgment in favor of Hudson on its claim AMCO had a duty to defend but deny

both parties’ motions concerning AMCO’s alleged duty to indemnify.

REVERSED AND REMANDED WITH INSTRUCTIONS.