America First Credit Union v. Kier Construction

2013 UT App 256
_________________________________________________________
THE U TAH COURT OF A PPEALS
A MERICA FIRST C REDIT U NION,
Plaintiff,
v.
KIER C ONSTRUCTION C ORPORATION,
Defendant, Third‐party Plaintiff and Appellee,
v.
BROBERG MASONRY , INC. AND O WNERS I NSURANCE COMPANY,
Third‐party Defendants and Appellant.
Opinion
No. 20101036‐CA
Filed October 24, 2013
Second District Court, Ogden Department
The Honorable Scott M. Hadley
No. 080905646
Richard K. Glauser and Jared R. Casper, Attorneys
for Appellant
Jack W. Reed and Matthew D. Ormsby, Attorneys
for Appellee
J UDGE MICHELE M. C HRISTIANSEN authored this Opinion, in
which J UDGES C AROLYN B. MCHUGH and STEPHEN L. R OTH
concurred.
CHRISTIANSEN, Judge:
¶1 	Owners 	Insurance 	Company 	(Owners) 	challenges 	the
district court’s denial of its motion for summary judgment. We
reverse and remand.

America First Credit Union v. Kier Construction Corp.
BACKGROUND
¶2 	The material facts in this case are undisputed. In April 2002,
America 	First 	Credit 	Union 	(AFCU) 	and 	Kier 	Construction
Corporation (Kier) entered into a contract for Kier to act as the
general contractor in the construction of an AFCU branch office
building in Slaterville, Utah. Kier subcontracted with Broberg
Masonry, Inc. (Broberg) to supply and install manufactured stone
veneer for the building. As part of its contract with Kier, Broberg
was required to obtain a commercial general liability insurance
policy (the CGL policy). Broberg obtained the CGL policy from
Owners and also obtained an endorsement thereto listing Kier as
an “Additional Insured.”
¶3 	The CGL policy is a standard commercial general liability
policy similar to those commonly used in the construction industry.
It provides that Owners will defend the insured in any suit against
the insured seeking damages that are payable under the terms of
CGL policy. The relevant policy provisions provide:
1. Insuring Agreement.
a. [Owners] 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.
. . . .
b. This insurance applies to . . . “property
damage” only if:
(1) The . . . “property damage” is
caused by an “occurrence”. . . .
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America First Credit Union v. Kier Construction Corp.
The CGL policy also generally excludes coverage for “‘property
damage’ to ‘your product’ . . . [and] to ‘your work.’”
¶4 	After AFCU filed a breach of contract action against Kier
alleging defective construction due to the cracking and failing of
the exterior masonry work on the building, Kier filed a third‐party
complaint against Broberg and Owners. Owners filed a motion for
summary judgment, arguing that the CGL policy did not provide
coverage to Kier for AFCU’s claims against it under these
circumstances. The district court ruled that the CGL policy did
provide coverage to Kier and denied Owners’ motion for summary
judgment. Specifically, the district court determined that a covered
“occurrence” had taken place because Kier, the general contractor,
did not expect to be liable for any damages arising from a
subcontractor’s faulty work; that the damage to the building’s
exterior was “property damage”; and that none of the CGL policy’s
exclusions applied to limit Owners’ duty to defend and indemnify
Kier. 	Owners 	challenges 	those 	determinations 	through 	an
interlocutory appeal, which this court granted.
ISSUES AND STANDARD OF REVIEW
¶5 	Owners 	argues 	that 	the 	district 	court 	erroneously
interpreted the CGL policy and denied its motion for summary
judgment. “Summary judgment is appropriate only where there
are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. We review a district court’s
grant 	of 	summary 	judgment 	for 	correctness 	and 	afford 	no
deference to the court’s legal conclusions.” Salt Lake City Corp. v.
Big Ditch Irrigation Co., 2011 UT 33, ¶ 18, 258 P.3d 539. Furthermore,
“[a]n insurance policy is merely a contract between the insured and
the insurer and is construed pursuant to the same rules applied to
ordinary contracts.” Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272,
1274 (Utah 1993). Accordingly, we review the district court’s
interpretation of the CGL policy for correctness. See Encon Utah,
LLC v. Fluor Ames Kraemer, LLC, 2009 UT 7, ¶ 11, 210 P.3d 263.
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America First Credit Union v. Kier Construction Corp.
ANALYSIS
I. The District Court Erred in Denying Owners’ Motion for
Summary Judgment Because the CGL Policy Excludes Coverage
for AFCU’s Property Damage Claims.
¶6 	Owners challenges the district court’s determinations that
the failure of the veneer constituted an “occurrence” involving
“property damage” sufficient to trigger coverage under the CGL
policy. We need not reach those issues, however, because we are
persuaded by Owners’ argument that the CGL policy excludes
coverage for the damage at issue here.
¶7 	Paying an insurance premium secures coverage for damage
only to the extent provided for in the policy. “Structurally, a CGL
policy ‘begin[s] with a broad grant of coverage, which is then
limited in scope by exclusions. Exceptions to exclusions narrow the
scope of the exclusion, and, as a consequence, add back coverage.’”
Greystone Constr., Inc. v. National Fire & Marine Ins. Co., 661 F.3d
1272, 1289 (10th Cir. 2011) (alteration in original) (quoting David
Dekker et al., The Expansion of Insurance Coverage for Defective
Construction, Constr. Lawyer, Fall 2008, at 19–20). Owners argues
that even if there was an “occurrence” and “property damage”
within 	the 	meaning 	of 	the 	CGL 	policy, 	the 	exclusions 	in
subsections k and l of the CGL policy exclude coverage for
property damage to work performed or products furnished by
Broberg. The exclusions read, in relevant part,
This insurance does not apply to:
. . . .
k. 	“Property damage” to “your product” arising
out of it or any part of it.
l. 	“Property damage” to “your work” arising
out of it or any part of it and including in the
“products‐completion operations hazard[.”]
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America First Credit Union v. Kier Construction Corp.
This exclusion does not apply if the damaged
work or the work out of which the damage
arises was performed on your behalf by a
subcontractor.
The 	CGL 	policy 	defines 	“your 	work” 	to 	mean 	“[w]ork 	or
operations performed by you or on your behalf[] and . . .
[m]aterials, parts or equipment furnished in connection with such
work 	or 	operations” 	and 	includes 	any 	warranties 	or
representations made with respect to such work. Likewise, the CGL
policy defines “your product” to mean “[a]ny goods or products,
other than real property, manufactured, sold, handled, distributed
or disposed of by . . . [y]ou” or certain related entities not relevant
here, and includes any warranties or representations made with
respect to such products. Owners argues that the district court
erroneously interpreted the CGL policy when it determined that
the term “‘[y]ou’ refers to the named insured, i.e., Kier.” Owners
contends that, as a result, the district court erred in concluding that
the exclusions for damage to “your work” and “your product” did
not apply and that coverage existed under the CGL policy for
AFCU’s damage claims.
¶8 	To determine if the district court erred, we must first
address whether it properly interpreted “you” and “your” within
the context of the above exclusions and then determine whether the
exclusions apply. “To determine whether the policy provides
coverage, we turn to the express language of the policy.” Pollard v.
Truck Ins. Exch., 2001 UT App 120, ¶ 7, 26 P.3d 868. “An insurer
may limit its obligation to provide coverage by exclusions phrased
in language which clearly and unmistakably communicates to the
insured the specific circumstances under which the expected
coverage will not be provided.” Id. ¶ 12 (citation and internal
quotation marks omitted). “Unless there is some ambiguity or
uncertainty in the language of the policy, it should be enforced
according to its terms.” Id. (citation and internal quotation marks
omitted).
20101036‐CA 	2013 UT App 256	5

America First Credit Union v. Kier Construction Corp.
A. 	“You” and “Your” as Used in the CGL Policy Refer to
Broberg as the Named Insured and Not to Kier as an
Additional Insured.
¶9 	In evaluating whether the exclusions in subsections k and l
applied to bar coverage of defects in the building’s veneer, the
district court explicitly determined that “‘[y]ou’ refers to the named
insured, 	i.e., 	Kier.” 	Owners 	argues 	that 	the 	district 	court
erroneously identified Kier as the named insured—and therefore
as “you”—under the CGL policy. 1 We agree with Owners.
¶10 	“[I]n the absence of ambiguity, we interpret the terms of an
insurance policy according to their plain meaning.” Pollard, 2001
UT App 120, ¶ 7 (citation and internal quotation marks omitted).
The CGL policy states, “Throughout this policy the words ‘you’
and ‘your’ refer to the Named Insured shown in the Declarations,
and any other person or organization qualifying as a Named
Insured under this policy.” The only Named Insured identified in
the CGL policy Declarations is Broberg. The only provision in the
CGL policy that provides for entities other than those identified in
the Declarations to qualify as a Named Insured is Section II(4).
1 Kier asserts that the issue of whether the district court
properly interpreted the CGL policy “from Kier’s perspective”
was not preserved below. However, the issue of whether the
exclusions for damage to “your work” and “your product”
applied was clearly raised to the court by both Owners and Kier.
Kier asserted below that because Broberg was a subcontractor of
Kier, the exclusions did not apply, and Owners argued that
because the damages were to Broberg’s work, the exclusions did
apply. The district court specifically ruled that in the context of
these exclusions, “‘[y]ou’ refers to the named insured, i.e., Kier.”
Thus, the issue of whether “you” and “your” in the exclusions
properly referred to Kier or Broberg is preserved because it was
“specifically raised” to the district court “in such a way that the
[district] court ha[d] an opportunity to rule on that issue.” See
438 Main St. v. Easy Heat, Inc., 2004 UT 72, ¶ 51, 99 P.3d 801
(citation and internal quotation marks omitted).
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America First Credit Union v. Kier Construction Corp.
Section II(4) provides for an entity newly acquired or formed by
“you” (the Named Insured) to qualify as a Named Insured itself
under certain circumstances. Any other person qualified under the
CGL policy is merely an “insured,” and not a Named Insured. The
endorsement adds Kier to the CGL policy as an Additional Insured,
not a Named Insured, and Kier does not qualify as a Named
Insured under any other provision of the CGL policy. Accordingly,
as used in the CGL policy, “you” and “your” refer only to Broberg,
the Named Insured shown in the Declarations. Thus, the district
court erred in concluding that Kier was a Named Insured under the
CGL policy and that “you” referred to Kier. 2 See Pollard, 2001 UT
App 120, ¶ 8 (concluding that under the plain language of a
commercial insurance policy, an individual identified as “insured”
did not fall within the policy’s definition of “You” as the “Named
Insured shown in the declarations”); see also National Union Fire Ins.
Co. v. Liberty Mut. Ins. Co., 234 F. App’x 190, 192 n.2, 193–94 (5th
Cir. 2007) (holding that because “you” was defined in the insurance
policy as “the Named Insured shown in the Declarations,” “you”
did not include the additional insureds under the policy).
B. 	Exclusions in subsections k and l of the CGL Policy Exclude
Coverage for Property Damage to Broberg’s Work and
Products.
¶11 	Under the provisions of the CGL policy, Owners agreed to
“pay those sums that the insured becomes legally obligated to pay
as damages because of . . . ‘property damage’ to which this
2 The district court’s reliance on Great American Insurance
Co. v. Woodside Homes Corp., 448 F. Supp. 2d 1275 (D. Utah 2006),
was misplaced. Although the court in Great American determined
that the subcontractor’s faulty work was an “occurrence” under
the general contractor’s CGL policy, that court was interpreting
whether the general contractor’s CGL policy provided coverage
for the general contractor for damages done by subcontractors.
See id. at 1277, 1279–83. Here, the general contractor and addi‐
tional insured, Kier, is seeking coverage under its subcontrac‐
tor’s CGL policy.
20101036‐CA 	2013 UT App 256	7

America First Credit Union v. Kier Construction Corp.
insurance applies.” However, provisions in the CGL policy exclude
coverage for “‘[p]roperty damage’ to ‘your product’ arising out of
it or any part of it” (Exclusion k) and “‘[p]roperty damage’ to ‘your
work’ arising out of it or any part of it and including in it the
‘products‐completed operations hazard’” (Exclusion l). Because we
have determined that “you” and “your” as used in the policy refer
only to Broberg, the district court erred in evaluating Exclusion k
and Exclusion l from the standpoint of Kier, rather than Broberg.
Thus, read correctly, the policy excludes coverage for “‘[p]roperty
damage’ to ‘[Broberg’s] product’ arising out of it or any part of it”
and “‘[p]roperty damage’ to ‘[Broberg’s] work’ arising out of it or
any part of it.”
1. 	Exclusion k Excludes Coverage for Property Damage to
Broberg’s Product.
¶12 	The district court erred in determining that because “there
is no evidence that the [building’s] veneer was Kier’s product or
that it handled the veneer at any time,” Exclusion k could not apply
to exclude coverage for damage to the veneer. Rather, because the
CGL excludes coverage for damage to “[Broberg’s] product,”
Exclusion k excludes coverage for “property damage” to “[a]ny
goods or products . . . manufactured, sold, handled, distributed or
disposed of by . . . [Broberg],” such as the stone veneer.
¶13 	Kier argues that Exclusion k does not apply to damage to
other construction elements that are not Broberg’s product, such as
the underlying plywood sheathing. However, as Owners correctly
notes, the only evidence Kier has identified that suggests there was
damage to any other construction element was struck by the
district court as inadmissible. Kier does not challenge on appeal the
district court’s ruling striking this evidence and therefore cannot
rely on the excluded evidence to argue that some coverage may
have 	existed 	notwithstanding 	Exclusion 	k. 	Accordingly, 	we
conclude that Exclusion k applies and that it bars coverage for any
damage to Broberg’s product.
20101036‐CA 	2013 UT App 256	8

America First Credit Union v. Kier Construction Corp.
2. 	The Subcontractor Exception to Exclusion l Does Not
Restore Coverage Eliminated by Exclusion l.
¶14 	The district court also erred when it concluded that the
subcontractor exception to Exclusion l restored coverage for
damage to the stone veneer because “this exclusion does not apply
to the work performed by Broberg on behalf of Kier.” The
subcontractor exception reads, “[Exclusion l] does not apply if the
damaged work or the work out of which the damage arises was
performed on your behalf by a subcontractor.” The district court’s
conclusion that this exception restored coverage is based on its
erroneous determination that “you” as used in the CGL policy
referred to Kier and that work performed by Broberg was therefore
work “performed on your behalf by a subcontractor.” However,
because the subcontractor exception, properly read, only restores
coverage 	for 	work 	“performed 	on 	[Broberg’s] 	behalf 	by 	a
subcontractor,” this exception does not apply to restore coverage
for damage to the stone veneer—work performed by Broberg, not
a subcontractor of Broberg. See National Union Fire Ins. Co. v. Liberty
Mut. Ins. Co., 234 F. App’x 190, 194 (5th Cir. 2007) (“Because the
contract defines ‘you’ as American Pipe, the exception applies
when someone else does work as American Pipe’s subcontractor,
not when American Pipe is a subcontractor. ‘[O]n your behalf’
becomes ‘on American Pipe’s behalf,’ so [the general contractor
and additional insured] cannot obtain the benefit of this exception,
because no one worked on American Pipe’s behalf.” (first alteration
in original)). And because the damage to the veneer was damage
to “[Broberg’s] work” within the meaning of the CGL policy, the
district court erred in concluding that Exclusion l did not bar
coverage for the damage to the stone veneer.
¶15 	Kier argues that even under the correct reading of the CGL
policy, the subcontractor exception to Exclusion l nevertheless
restores 	coverage 	for 	damage 	to 	the 	veneer 	because 	“the
manufacturer of the stone veneer Broberg installed . . . is a
subcontractor of Broberg” under Jacobsen Construction Co. v.
Industrial 	Indemnity 	Co., 	657 	P.2d 	1325 	(Utah 	1983). 	“A
subcontractor means one who has contracted with the original
contractor for the performance of all or a part of the work or
20101036‐CA 	2013 UT App 256	9

America First Credit Union v. Kier Construction Corp.
services which such contractor has himself contracted to perform.”
Id. at 1327. We do not agree that the stone veneer constitutes work
performed on Broberg’s behalf by a subcontractor simply because
Broberg purchased the material to install the stone veneer from a
manufacturer of stone products.
¶16 	In Jacobsen, our supreme court’s determination that a
material supplier was a subcontractor was premised on the custom
and specialized nature of the fiberglass tanks provided by the
supplier. Id. at 1327–29. Indeed, the supreme court quoted with
approval from a California Supreme Court decision, “‘We are not
here concerned with the mere furnishing of materials from which
doors were to be constructed by the general contractor, nor are we
interested in the sale of standard stock‐in‐trade doors.’” Id. at 1328
(quoting Theisen v. County of Los Angeles, 352 P.2d 529, 537 (Cal.
1960) (in bank)). The Jacobsen court went on to observe that the
fiberglass tanks at issue could not have been obtained in the open
market, were produced to meet detailed specifications, and were
not stock‐in‐trade items of the type ordinarily furnished by a
materials supplier, but were custom fabricated for the project at
issue in the case. Id. at 1329. Accordingly, the court concluded that
the supplier of the custom fiberglass tanks was a subcontractor as
a matter of law. Id.
¶17 	Here, Kier does not develop its argument that the stone
manufacturer 	was 	a 	subcontractor 	of 	Broberg 	beyond 	the
conclusory statement that, as the manufacturer of the stone product
used in the veneer, it was a subcontractor under Jacobsen. Kier does
not argue that the stone was custom fabricated or cite any record
evidence suggesting that it was. Kier’s only relevant factual claim
is that “Broberg purchased the manufactured stone veneer product
used on the project from [the manufacturer].” Based on the record
before us, which demonstrates only that Broberg purchased
materials from the stone manufacturer, we do not agree that the
stone manufacturer was a subcontractor under Jacobsen.
¶18 	Because the terms “you” and “your” as used in Exclusion k
and Exclusion l refer to Broberg, the district court erred in
determining that Kier was the subject of those exclusions and that
20101036‐CA 	2013 UT App 256	10

America First Credit Union v. Kier Construction Corp.
coverage was therefore available under the CGL policy for the
damage to the stone veneer.
CONCLUSION
¶19 	The district court erred in determining that Kier was a
Named Insured under the CGL policy and therefore the subject of
the CGL policy’s exclusions for damage to “your work” and “your
product.” Properly interpreted, these exclusions bar coverage for
AFCU’s alleged damages, and Owners is not liable to cover these
damages under the CGL policy as a matter of law. We reverse the
district court’s denial of Owners’ summary judgment motion and
remand for entry of summary judgment in favor of Owners. 3
3 Due to this dispositive determination, we need not ad‐
dress the other arguments made on appeal. We note, however,
that Kier also argues that Broberg was required by the contract
to provide insurance coverage for defective work. Though Kier
may be able to demonstrate that Broberg failed to obtain such
coverage and thereby breached its contract with Kier, such
failure would not result in a determination that Owners is re‐
quired to provide additional coverage not obtained by Broberg.
20101036‐CA 	2013 UT App 256	11