S.E. Arnold and Co., Inc. v. Cincinnati Ins. Co.

Cite as 2016 Ark. App. 587

ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-16-73

Opinion Delivered: December 7, 2016
S.E. ARNOLD AND COMPANY, INC.
D/B/A ARNOLD’S FLOORING
AMERICA APPEAL FROM THE PULASKI
APPELLANT COUNTY CIRCUIT COURT,
SECOND DIVISION
V. [NO. 60CV-15-1368]

CINCINNATI INSURANCE
COMPANY HONORABLE CHRISTOPHER
APPELLEE CHARLES PIAZZA, JUDGE

AFFIRMED

BART F. VIRDEN, Judge

Appellant S.E. Arnold and Company, Inc., d/b/a Arnold’s Flooring America

(Arnold), was sued by Barry and Andrea Griffith in connection with alleged defective

flooring that was supplied by Arnold and installed by a subcontractor hired by Arnold.

Arnold filed a claim with its insurer, Cincinnati Insurance Company (Cincinnati), with

which it had a commercial general liability (CGL) policy. Cincinnati denied coverage, citing

an exclusion in Arnold’s policy for “damage to your product.” 1 Arnold then sued

Cincinnati, claiming that the insurer owed a duty to defend and indemnify. Both parties

filed motions for summary judgment. The Pulaski County Circuit Court granted

Cincinnati’s motion, and Arnold has appealed from that order. Arnold argues that the

Cincinnati filed a motion asking this court to consider Columbia Insurance Group, Inc.
1

v. Cenark Project Management Services, Inc., 2016 Ark. 185, 491 S.W.3d 135, which was
decided after this case had been submitted. This court granted that motion.
Cite as 2016 Ark. App. 587

allegations in the underlying complaint triggered Cincinnati’s duty to defend and indemnify

and that no exclusions in its policy precluded coverage for faulty-workmanship claims. We

affirm.

I. Duty to Defend and Indemnify

The general rule is that the allegations in the pleadings against the insured determine

the insurer’s duty to defend. Murphy Oil USA, Inc. v. Unigard Security Ins. Co., 347 Ark.

167, 61 S.W.3d 807 (2001). The duty to defend is broader than the duty to indemnify;

however, the duty to defend arises when there is a possibility that the injury or damage may

fall within the policy coverage. Id. Conversely, when there is no possibility that the damage

alleged in the complaint may fall within the policy coverage, there would be no duty to

defend. Id.

II. Factual Background

In January 2014, Barry and Andrea Griffith paid Arnold over $78,000 to supply and

install wood flooring in their residence. The Griffiths subsequently sued Arnold, alleging

that “the products and services as provided” by Arnold were defective and that Arnold had

breached its contract, had been negligent, and had violated applicable rules, regulations, and

laws. They further alleged that the flooring “as sold and installed is subject to, contains, and

is defective in multiple instances” including, but not limited to, the following:

(1) Splinters and/or slivers protrude from the surface of the floor;

(2) Cupping occurs across the width of individual pieces of flooring;

(3) Checks occur with separation of the wood across or through the annual rings;

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(4) Flooring was installed in contradiction to and violation of the standards of the
National Wood Flooring Association and Wood Flooring Manufactures [sic]
Association;

(5) Flooring was installed in violation of applicable building codes and standards.

III. Arnold’s CGL Policy and Construction of Insurance Contracts

In the “Coverages” section of Arnold’s CGL policy, Cincinnati’s Insuring

Agreement provides that

a. We will pay those sums that the insured becomes legally obligated to pay as
damages because of “bodily injury” or “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 “bodily injury” or “property damage” to
which this insurance does not apply.
....

b. This insurance applies to “bodily injury” and “property damage” only if

(1) The “bodily injury” or “property damage” is caused by an “occurrence”. . . .
....
Arnold’s CGL policy further provides that there are exclusions for

k. Damage to Your Product: “Property damage” to “your product” arising out of
it or any part of it.

l. Damage to Your Work: “Property damage” to “your work” arising out of it or
any part of it and included in the “products-completed operations hazard.” 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 “Definitions” section of Arnold’s CGL policy provides that

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16. “Occurrence” means an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.[ 2]
....

20. “Property damage” means:

(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 . . . .
....

25. “Your Product”:

(a) Means:

(1) Any goods or products, other than real property, manufactured, sold, handled,
distributed or disposed of by:

(a) you; . . . and

(2) Containers (other than vehicles), materials, parts or equipment furnished in
connection with such goods or products.

(b) Includes:

(1) Warranties or representations made at any time with respect to the fitness,
quality, durability, performance or use of “your product”; and

(2) The providing of or failure to provide warnings or instructions.
...

2
According to a subsequent endorsement modifying coverage under Arnold’s CGL
policy,
Pursuant to Ark. Code Ann. § 23-79-155,

A. The definition of “occurrence” includes faulty workmanship; and

B. The definition of “occurrence” required by this section of Arkansas law does not
serve to limit or restrict the applicability of any exclusion for “bodily injury” or
“property damage” under this Coverage Part.
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26. “Your work”:

(1) Means:

(2) Work or operations performed by you or on your behalf; and

(3) Materials, parts or equipment furnished in connection with such work or
operations.

(a) Includes:

(1) Warranties or representations made at any time with respect to the fitness,
quality, durability, performance or use of “your work”; and

(2) The providing of or failure to provide warnings or instructions.

The law regarding the construction of an insurance contract is well settled. Safeco Ins.

Co. of Ill. v. S. Farm Bureau Cas. Ins. Co., 2013 Ark. App. 696, 430 S.W.3d 815. Once it is

determined that coverage exists, it then must be determined whether the exclusionary

language within the policy eliminates the coverage. Id. Exclusionary endorsements must

adhere to the general requirement that the insurance terms be expressed in clear and

unambiguous language. Id. Whether the language of the policy is ambiguous is a question

of law to be resolved by the court. Id. If the language of the policy is unambiguous, we will

give effect to the plain language of the policy without resorting to the rules of construction.

Id. On the other hand, if the language is ambiguous, we will construe the policy liberally in

favor of the insured and strictly against the insurer. Id. The terms of an insurance contract

are not to be rewritten under the rule of strict construction against the company issuing it

so as to bind the insurer to a risk that is plainly excluded and for which it was not paid.

Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998).

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IV. Summary-Judgment Proceedings

Following a hearing, the trial court granted Cincinnati’s motion for summary

judgment and denied Arnold’s countermotion. 3 The trial court granted summary judgment

in favor of Cincinnati because it found that the flooring materials referenced in the Griffiths’

complaint were products sold by Arnold; that Arnold’s policy contained an exclusion for

any property damage arising out of the insured’s products; and that the Griffiths’ complaint

alleged damage to the flooring itself and made no reference to any other damage in the

home. The trial court concluded that the damage-to-your-product exclusion applied and

that Cincinnati was entitled to judgment as a matter of law. Arnold filed a timely notice of

appeal to this court.

V. Standard of Review

The law is well settled regarding the standard of review used by the appellate courts

in reviewing a grant of summary judgment. Dep’t of Human Servs. v. Civitan Ctr., 2012 Ark.

40, 386 S.W.3d 432. A trial court will grant summary judgment when it is apparent that no

genuine issues of material fact exist requiring litigation and that the moving party is entitled

to judgment as a matter of law. Id. On appeal, this court determines if summary judgment

was appropriate based on whether the evidentiary items presented by the moving party leave

a material question of fact unanswered. Id. We view the evidence in a light most favorable

to the party against whom the motion was filed, resolving all doubts and inferences against

the moving party. Id.

3
The trial court also disposed of all other matters, which are not relevant to this
appeal.
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Cite as 2016 Ark. App. 587

VI. Arguments

Arnold argues that the Griffiths’ complaint pointed to both products and work

supplied by Arnold. Also, Arnold asserts that one of the counts in the Griffiths’ complaint

was for negligence, which is targeted more toward the work performed, rather than the

product itself. Arnold contends that there has been no adjudication of those claims, so it is

impossible to know whether the problems with the flooring were caused by a defective

product or faulty workmanship. Arnold points out that the Griffiths alleged faulty

workmanship, specifically related to the flooring’s installation in violation of certain

standards and codes. Arnold argues that the definition of “occurrence” includes faulty

workmanship, which triggered coverage and Cincinnati’s duty to defend and indemnify.

According to Arnold, no exclusions applied to claims of faulty workmanship. 4 Arnold

points out that some of the language in the definitions of “your product” and “your work”

are identical and overlap, yet the policy still includes separate definitions for these terms,

meaning that an insured’s product and work are separate items for purposes of the policy

and, therefore, the damage-to-your-product exclusion would not bar coverage as to

allegations of faulty workmanship. Also, damage that occurred to the flooring materials

themselves are not subject to the damage-to-your-product exclusion because the definition

of “your work” includes “materials, parts or equipment furnished in connection with such

4
Arnold maintains that the damage-to-your-work exclusion was inapplicable because
Arnold employed a subcontractor to install the flooring and that there is an exception for
damages arising from work performed by subcontractors. Cincinnati, however, never
asserted that this exclusion applied in denying coverage, so no in-depth discussion of that
exclusion is necessary.

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work or operations.” According to Arnold, “materials” thus cannot be a synonym for “your

product.” Arnold contends that, at the very least, this conflicting and overlapping language

demonstrates an ambiguity that created a genuine issue of material fact. 5

VII. Discussion

Our supreme court cited with approval a case from the Wisconsin Supreme Court,

American Family Mutual Insurance Company v. American Girl, Inc., 673 N.W.2d 65 (Wis.

2004), which employed a three-step analysis for evaluating coverage in CGL policies. See

Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., Inc., 2016 Ark. 185, at 6, 491 S.W.3d

135, 138–39. The court in American Family stated,

First, we examine the facts of the insured’s claim to determine whether the policy’s
insuring agreement makes an initial grant of coverage. If it is clear that the policy was
not intended to cover the claim asserted, the analysis ends there. If the claim triggers
the initial grant of coverage in the insuring agreement, we next examine the various
exclusions to see whether any of them preclude coverage of the present claim.
Exclusions are narrowly or strictly construed against the insurer if their effect is
uncertain. We analyze each exclusion separately; the inapplicability of one exclusion
will not reinstate coverage where another exclusion has precluded it. Exclusions
sometimes have exceptions; if a particular exclusion applies, we then look to see
whether any exception to that exclusion reinstates coverage. An exception pertains
only to the exclusion clause within which it appears; the applicability of an exception
will not create coverage if the insuring agreement precludes it or if a separate
exclusion applies.

Am. Family Mut. Ins. Co., 673 N.W.2d at 73 (citations omitted).

5
In its reply brief, Arnold offers the possibility that the installed floors were
incorporated into the structure and could be considered part of the real property. Arnold
asserts that this is a “real estate exception,” meaning that the damage-to-your-product
exclusion would not apply. This court does not consider arguments raised for the first time
in a reply brief. Orintas v. Point Lookout Prop. Owners Ass’n Bd. of Dir., 2015 Ark. App. 648,
476 S.W.3d 174.

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No one disputes that faulty workmanship is an “occurrence.” See Ark. Code Ann. §

23-79-155 (Supp. 2015). The parties appear to agree that the insuring language in Arnold’s

CGL policy was triggered. Although the Griffiths complained about the installation of the

flooring, which could be considered faulty workmanship, the only resulting damage alleged

in the complaint was to the flooring itself, which was a product admittedly sold by Arnold.

We hold that there was no uncertainty as to the effect of the damage-to-your-product

exclusion—it excluded coverage for property damage to Arnold’s product arising out of it

or any part of it. 6

The Eighth Circuit Court of Appeals has held that the purpose of the damage-to-

your-product exclusion is to prevent the insured from using its products-liability coverage

as a form of property insurance to cover the cost of repairing or replacing its own defective

products or work. Netherlands Ins. Co. v. Main St. Ingredients, LLC, 745 F.3d 909 (8th Cir.

2014). Cincinnati’s counsel provided the following example during his argument at the

summary-judgment proceedings. A roofing company sold defective shingles to a consumer.

When the consumer’s roof leaked, the water damaged the carpet and drapes in the

consumer’s home. While the latter damage would be covered by the roofing company’s

CGL policy, the insurer would not be obligated to replace the roof under the damage-to-

your-product exclusion. The trial judge offered his own example related to Arnold’s CGL

6
According to Arnold, the “conflicting and overlapping” language of the policy
demonstrated the existence of an ambiguity, which created a genuine issue of material fact
to be litigated. While the determination of what an ambiguous term in a contract means is
a question for the fact-finder, the initial and predicate determination of whether an
ambiguity exists is a question of law. Singh v. Riley’s, Inc., 46 Ark. App. 223, 878 S.W.2d
422 (1994). The trial court found no ambiguity in the policy’s terms, and we cannot say
that its determination was incorrect.
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policy. If the cupping of the Griffiths’ flooring had resulted in someone tripping and

bumping his or her head, that bodily injury, like property damage, would have been covered

because it was damage to something other than Arnold’s product.

The Griffiths alleged no damages beyond damage to Arnold’s own product, which

was the flooring itself. The damage-to-your-product exclusion applied and thus precluded

coverage, regardless of the inapplicability of the damage-to-your-work exclusion. We

conclude that there was no possibility that the damages alleged by the Griffiths would have

been covered by Arnold’s CGL policy in light of the damage-to-your-product exclusion;

therefore, Cincinnati had no duty to defend or indemnify. Granting summary judgment in

favor of Cincinnati was appropriate under these circumstances, and we thus must affirm the

trial court’s decision.

Affirmed.

GLOVER and WHITEAKER, JJ., agree.

David A. Hodges, for appellant.

Barber Law Firm PLLC, by: Scott M. Strauss and Carolyn T. Harder, for appellee.

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