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Martin/Elias Properties, LLC v. Acuity

Supreme Court of Kentucky

April 26, 2018



          COUNSEL FOR APPELLANT: Paul R. Boggs, III Jonathan Douglas Gray Wallace Boggs, PLLC

          COUNSEL FOR APPELLEE: Katherine Kennedy Laura Salzman, Judd Uhl Lewis, Brisbois, Bisgaard & Smith, LLP



         In Cincinnati Ins. Co. v. Motorist Mut. Ins. Co.[1], this Court held that damage because of a contractor's faulty workmanship does not constitute an occurrence covered under the contractor's commercial general liability (CGL) j insurance policy. The Court of Appeals applied the principles of Cincinnati in the present case to hold that a contractor's faulty workmanship on the basement and foundation of an existing structure, resulting in extensive damage to the entire building, was not an accident triggering coverage as an occurrence under the contractor's CGL policy. On discretionary review, we agree that the Court of Appeals correctly applied the law and affirm.


         Martin Elias/Properties, LLC ("MEP") purchased an old home in a historic urban neighborhood to renovate and resell for a profit. After completing renovations on the first, second, and third floors, MEP hired Tony Gosney to renovate and expand the basement.

         Gosney agreed that he would dig the existing basement deeper, pour new footers to stabilize the building, and pour a new concrete floor. While performing his work on the townhouse, Gosney failed to support the existing foundation adequately before digging around it. Within days, the old foundation began to crack and eventually the entire structure began to sag. Interior doors began sticking and brick walls began cracking. At this point, Gosney stopped work and notified his CGL insurer, Acuity. Acuity recommended that MEP hire a structural engineer to evaluate the condition of the structure.

         MEP's structural engineer reported that the entire structure was at risk of imminent collapse. To repair the damage caused by Gosney's work would require substantial work. After learning this, MEP made a demand for payment upon both Gosney and Acuity, but they rejected the demand. So MEP sued Gosney and Acuity in circuit court. Against Gosney, MEP claimed negligence, breach of contract, and breach of warranties. Against Acuity, MEP asserted bad faith by failing to provide coverage under its CGL policy. Meanwhile, Gosney sought bankruptcy protection and disappeared. Later, efforts by private investigators to locate Gosney failed, and he neither testified at trial nor participated in any way.

         MEP and Acuity each filed motions for summary judgment citing the same language in Acuity's CGL policy. The policy provided that Acuity would pay for property damage if it resulted from an "occurrence." The policy defined occurrence as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy did not define the term accident.

         MEP argued that the damage to the property from Gosney's work should be considered an accident triggering coverage under the CGL policy issued by Acuity. Acuity argued that the structural damage was caused by Gosney's faulty workmanship, a circumstance that failed to qualify as an occurrence under the CGL policy, and therefore, the loss was not covered by Gosney's policy.

         The trial court granted partial summary judgment to both parties. The court ruled that MEP could not recover from Acuity for the damage to the basement because that damage directly resulted from the faulty work Gosney performed, hence not satisfying the requirement of an occurrence under the CGL policy. But the trial court also ruled that MEP could recover from Acuity under the policy for the damage to the structure above the basement level. Damage to the structure above the basement, the trial court reasoned, was an unexpected and unintended consequence of Gosney's faulty work on the basement, making this portion of the total loss an occurrence covered by the policy.

         The case was then tried to a jury on the issue of damages. The jury found the cost to repair the entire structure to be $700, 000. It found the cost to repair the basement alone to be $227, 000. Applying it's ruling on liability from its summary judgment, the trial court $227, 000 from the total cost of repair to arrive at a final judgment that required Acuity to pay MEP $473, 000.

         Acuity appealed the judgment, and a unanimous panel of the Court of Appeals reversed the trial court judgment. Applying the rule established in Cincinnati, the appellate panel emphasized Gosney's intent and control over the work to reverse the trial court's summary judgment and hold that none of the structural damage qualified as an accident triggering coverage as an occurrence under Acuity's CGL policy. We agree.

         II. ANALYSIS.

         A. Standard of Review.

         Interpretation of a contract is ordinarily a question of law for a court's m determination.[2] So with questions of contractual interpretation, an appellate court reviews the lower court's findings de novo, with no deference to the ruling of the lower court.[3]

         B. Bituminous Casualty Corporation v. Kenway Contracting and Cincinnati Insurance Company v. ...

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