Summary
The Arizona Supreme Court held that a homeowner's policy exclusion for personal liability "under any contract or agreement" did not eliminate the insurer's duty to defend a builder-vendor against a buyer's negligent excavation claim. The negligence claim was potentially based on an independent common-law duty to construct the home as a reasonable builder would, rather than solely on the real estate contract. The court reversed the superior court's summary judgment concerning the 82nd Place Property policy and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether the contractual-liability exclusion providing that American Family would not cover personal liability 'under any contract or agreement' relieved American Family of its duty to defend Teufel under the 82nd Place Property policy.
- Whether Cetotor's negligent-excavation claim was a stand-alone tort claim arising from a builder-vendor's common-law duty of care, rather than liability required by or originating from the real estate purchase contract.
Holdings
- The contractual-liability exclusion does not apply merely because the claimant's injury would not have occurred but for a contract. The exclusion applies to personal liability required by or originating from a contract, not to liability based on a stand-alone tort claim that is viable apart from the contract.
- American Family was required to defend Teufel against Cetotor's negligence claim because the claim alleged property damage caused by negligent excavation and rested on a builder's common-law duty to construct a home as a reasonable builder would.
Key quotations
“We hold that the exclusion does not apply to relieve the insurer of its duty to defend because the negligence claim arises from the common law duty to construct the home as a reasonable builder would.” (¶1)
“But if any claims fall within policy coverage, the insurer must defend against all claims, including "claims potentially not covered and those that are groundless, false, or fraudulent."” (¶11)
“As contemplated by Woodward, Cetotor's negligence claim rests on a builder's common law duty to construct a home as a reasonable builder would.” (¶28)
Factual background
Dennis Teufel hired Carmel Homes Design Group to build a mountainside home in Paradise Valley and initially obtained a homeowner's policy from American Family for that property. After deciding not to live there, Teufel sold the home to Cetotor, Inc., while a separate homeowner's policy covered a Scottsdale residence from January 2012 through January 2013. Rockslides occurred at the Paradise Valley property in November 2011 and August 2012, allegedly because of improper excavation, and Cetotor sued Teufel for breach of contract, negligence, and fraud-based claims. American Family refused Teufel's tender of the defense under both policies.
Procedural history
The superior court held that the Longlook Property policy did not cover the claimed damage because the damage occurred outside the policy period and that the contractual-liability exclusion barred coverage under the 82nd Place Property policy. The court of appeals affirmed the ruling concerning the Longlook policy but reversed the ruling concerning the 82nd Place policy. The Arizona Supreme Court affirmed paragraphs twelve and thirteen of the court of appeals' memorandum decision, reversed the superior court's summary judgment concerning the duty to defend under the 82nd Place policy, and remanded for further proceedings.
Remand instructions
Remand to the superior court for further proceedings consistent with the ruling that the contractual-liability exclusion does not relieve American Family of its duty to defend Teufel under the 82nd Place Property policy.