BY JAMES R. KELLER
Missouri’s Eastern District Court of Appeals recently granted judgment for homeowners and against their insurance carrier on claims for construction damages to piers, a pole and the foundation of their home. The appellate court sent part of the dispute back to the trial court to consider further whether the insurance company’s refusal to cover a policy claim for these damages was vexatious.
The case is Cockerham v. American Family Mutual Insurance Company, 561 S.W.3d 862 (Eastern District, MO 2018).
The appellate court noted this was the first case in Missouri to directly address the issue of insurance coverage under a policy of this sort. The Missouri Supreme Court denied on Dec. 18 an application to consider the Eastern District’s opinion.
The Eastern District’s decision is now new law affecting all similarly worded insurance policies, at least in Missouri courts in the Eastern District.
Homeowners Robert and Stacia Cockerham sued their insurance provider, American Family Mutual Insurance Company, for damages relating to the construction of an addition to their residence. The addition was a celestial observatory.
The alleged damages involved a newly installed telescope support system attached to the foundation of their home and the homeowners’ loss of use of the observatory.
The homeowners purchased their home on Lakeshore Drive in Creve Coeur, MO in 2001. In 2005 they hired Nicholas Schalk and Schalk Construction, LLC to construct the observatory addition to their home.
The project included a telescope and its support system. Schalk had never before built such a system.
Schalk hired one subcontractor to install the piers and a separate subcontractor to pour concrete over the piers. The homeowners claimed the concrete subcontractor poured the concrete incorrectly, damaging the piers, the support system and the foundation.
The homeowners made a claim on their insurance policy to cover the losses. American Family denied coverage. It contended the claims were excluded from coverage or were not covered at all under the homeowner policy.
After cross motions for summary judgment, the trial court granted American Family’s motion in part by dismissing the homeowners’ claim for vexatious refusal to pay for the piers, pole and foundation damage. The homeowners appealed.
The appeal involved interpretation of the insurance policy and its various sections. Typically, this is a question of law for judges, not juries, to decide.
The policy excluded defective construction in part C but it did cover “resulting loss” to property described in Part C that was “not excluded.”
The Eastern District found its job to be difficult. The policy required the appellate court to “decipher a rather prolix word puzzle.” Insurance policies tend to be complicated, layered with qualifiers, exceptions and exclusions.
American Family argued that it did not cover the loss because the homeowners’ losses were already excluded due to faulty construction. The “not excluded” clause did not apply, the carrier contended, since the coverage already was excluded.
Focusing on the “resulting loss” clause, the Eastern District rejected this argument. The policy did not define “resulting loss.” As Missouri courts typically do when the contract does not define a word whose meaning the parties dispute, the court turned to Webster’s Dictionary for guidance.
Webster’s Third New International Dictionary (1993), unabridged, defines the verb form of the word “result” as “to proceed, spring or arise as a consequence, effect or conclusion: to come out or have an issue.”
The court noted that the policy did not specifically state what a “resulting loss” may result from except to the extent such losses will not be covered that are “excluded or excepted” from the policy.
The Eastern District concluded that an ordinary purchaser of insurance would conclude that where one loss results from another loss caused by faulty construction, “such resulting loss is covered.”
Thus, the policy covered the damages to the piers, pole and foundation due to the incorrectly poured concrete. This includes the cost to remove and replace the bad concrete.
The Eastern District also found there were factual questions as to whether American Family’s refusal to pay on this claim was vexatious. This included a dispute as to whether the insurance company’s position denying coverage was willful and unreasonable.
The court’s finding means the dispute has returned to the trial court for further consideration regarding the piers, pole and foundation claims for vexatious refusal to pay.
The homeowners also had a claim for loss of use of their observatory. The policy, however, covered such a loss only when the property as a whole was uninhabitable, causing additional homeowner expenses.
The appellate court agreed with the trial court’s denial of this claim.
It was undisputed that the house was not uninhabitable – especially since the homeowners continued to live there. They had no claim for additional living expenses because there were none.
The appellate court concluded that American Family clearly was not subject to a vexatious refusal to pay claim for loss of use. Since there was no coverage, the carrier’s position was proper.
The homeowners had additional assertions that the Eastern District found persuasive enough to raise more genuine fact questions meriting further trial court consideration. They included that American Family’s representatives told the homeowners they did not need a builder’s risk policy to cover losses like the ones that occurred in this case, given the policy they had. The representatives included an adjuster who allegedly told them that “their losses would be covered.”
The appellate court also noted that the carrier did not cite the “resulting loss” clause in its defense when it filed its answer to the initial lawsuit. It did not rely on this clause in its briefs on the motions for summary judgment.
The insurance company relied solely on the faulty construction exclusion.
James R. Keller is counsel with Sandberg Phoenix & von Gontard P.C. where he concentrates his practice on construction law, complex business disputes, real estate and alternative dispute resolution. He also is an arbitrator and a mediator. Keller can be reached at (314) 446-4285 or jkeller@sandbergphoenix.com.
