General Casualty Insurance Co. v. Exterior Sheet Metal

Full title: GENERAL CASUALTY INSURANCE COMPANIES, Plaintiff, v. EXTERIOR SHEET METAL…

Court: United States District Court, N.D. Iowa, Eastern Division

Date published: Dec 24, 2002

No. C01-2085 (N.D. Iowa Dec. 24, 2002)

Opinion

No. C01-2085.

December 24, 2002

ORDER

JOHN A. JARVEY, United States Magistrate Judge

This matter comes before the court pursuant to the defendant's August 20, 2002, motion for summary judgment (docket number 8) and the plaintiff's October 11, 2002, cross-motion for summary judgment (docket number 12). The parties have consented to the exercise of jurisdiction by a United States Magistrate Judge pursuant to the provisions of 28 U.S.C. § 636(c). For the reasons set forth below the defendant's motion is granted in part and denied in part and the plaintiff's motion is denied.

In this case, the plaintiff, General Casualty Insurance Company (General Casualty) seeks a declaratory judgment denying its duty to defend Exterior Sheet Metal (ESM) under insurance policies issued to ESM. ESM moves for summary judgment arguing: (1) the incident giving rise to this caes involved "property damage" caused by an "occurrence" as defined in its insurance policy; (2) General Casualty cannot show any policy exclusion denies coverage; (3) General Casualty cannot show a lack of compliance with the notice provisions of the policy or that it was prejudiced thereby; and (4) General Casualty cannot show ESM's umbrella policy does not provide coverage. General Casualty moves for summary judgment arguing: (1) there is no coverage under the policies because any "property damage" was not caused by an "occurrence" within the meaning of the policy; (2) there is no coverage under the policies because ESM failed to substantially comply with the condition precedent of notifying General Casualty "as soon as practicable" of an "occurrence" that "may result in a claim" or a "claim" made against ESM; and (3) exclusions operate to preclude coverage.

Summary Judgment: The Standard

A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir. 1986). Once the movant has properly supported its motion, the nonmovant "may not rest upon the mere allegations or denials of [its] pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial."Fed.R.Civ.P. 56(e). "To preclude the entry of summary judgment, the nonmovant must show that, on an element essential to [its] case and on which it will bear the burden of proof at trial, there are genuine issues of material fact." Noll v. Petrovsky, 828 F.2d 461, 462 (8th Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). Although "direct proof is not required to create a jury question, . . . to avoid summary judgment, `the facts and circumstances relied upon must attain the dignity of substantial evidence and must not be such as merely to create a suspicion.'" Metge v. Baehler , 762 F.2d 621, 625 (8th Cir. 1985) (quoting Impro Prod., Inc. v. Herrick, 715 F.2d 1267, 1272 (8th Cir. 1983)).

The nonmoving party is entitled to all reasonable inferences that can be drawn from the evidence without resort to speculation. Sprenger v. Fed. Home Loan Bank of Des Moines, 253 F.3d 1106, 1110 (8th Cir. 2001). The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Id. "The interpretation and construction of insurance policies is a matter of law, and therefore, issues involving the duty to defend are particularly amenable to summary judgment." Reliance Ins. Co. v. Shenandoah S., Inc., 81 F.3d 789, 791 (8th Cir. 1996) (citing First S. Ins. Co. v. Jim Lynch Enter., 932 F.2d 717, 719 (8th Cir. 1991)).

Statement of Undisputed Material Facts

In 1997, the University of Northern Iowa (UNI) decided to remodel the UNI-Dome athletic facility located in Cedar Falls, Iowa. In the fall of 1997, ESM submitted a bid for the sheet metal roofing phase of the project and was subsequently awarded the bid. Penn-Co Construction, Inc. (Penn-Co) was the general contractor. ESM was required to submit a performance bond on the job.

On June 17, 1998, Leif Eng, President of ESM, contacted Gary Martens, an independent insurance agent, who wrote a General Casualty insurance policy for ESM. ESM purchased Commercial General Liability (CGL) insurance policies and umbrella policies from General Casualty for the period of June 12, 1998 through June 12, 2002. At all relevant times, the policies were in full effect and ESM had paid the required premiums. Both policies provided that the insurance cover only "property damage" caused by an "occurrence." An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policies required the insured to provide notice "as soon as practicable" of an "occurrence which may result in a claim" or if a "claim is made or `suit' is brought against any insured." Both policies contain an exclusion that states: "this insurance does not apply to: (a) Expected or Intended Injury . . . `property damage' expected or intended from the standpoint of the insured." The policies also contain a "business risk" exclusion for repairing, restoring or replacing property damaged by an insured's defective work.

From July of 1998 through October of 1998, ESM performed its work on the new roof of the UNI-Dome. During the construction phase of the project, Mr. Eng and the ESM foreman on the project, Kent Risbeck, became concerned that the roof may leak. After the roof was substantially completed, ESM returned on several occasions to complete "punch-list" items.

UNI subsequently occupied and used the remodeled UNI-Dome facility. After ESM left the project, the roof on the UNI-Dome began to leak following a snow and ice storm in November of 1998. ESM continued to work on the roof through the fall of 2000 to resolve any problems with the leaking roof. ESM was under the belief that any problems with the roof were not a construction problem but were a design defect. In 1999, UNI hired a consultant to review ESM's work. In July of 1999, the consultant concluded that ESM's work was deficient and its deficient work contributed to the leaking roof. In November of 1999, Penn-Co made a claim on ESM's performance bond. Following the demand on its bond, ESM retained an attorney. ESM's attorney wrote a letter to Penn-Co and UNI expressing an intent to "vigorously defend any attempts to hold ESM liable for roof defects."

On July 21, 2000, the Board of Regents of the State of Iowa and UNI filed a lawsuit against Penn-Co and against other parties in Black Hawk County, Iowa. This case arose out of the construction of the UNI-Dome and the numerous problems the University was experiencing with it, one of which was the leaking roof. UNI is seeking damages in addition to the costs of replacing the roof itself, including damages to the UNI-Dome track, football field, seats and lost revenues as a result. On April 20, 2001, Penn-Co filed a third-party petition for indemnity naming all of its subcontractors, including ESM, as defendants based upon the work they did on the UNI-Dome construction project.

After ESM received the third-party petition, Mr. Eng contacted his insurance agent, Mr. Martens. Mr. Martens assured Mr. Eng that ESM had coverage under its policy. On May 4, 2001, ESM gave notice to General Casualty directly. The notice stated that there had been an "occurrence" within the meaning of the policy on April 1, 2000 and the UNI-Dome roof is leaking. On May 16, 2001, General Casualty wrote a letter to ESM stating it would investigate coverage under a complete reservation of rights. The letter also stated that it did not appear that ESM had coverage. On October 5, 2001, General Casualty denied coverage and also denied providing costs of defense for ESM in the original Black Hawk County action. In a letter to ESM, General Casualty gave three reasons why it was denying coverage: (1) there is no coverage under the policy because there is no claim to "bodily injury" or "property damage" caused by an "occurrence"; (2) coverage is excluded because the policy excludes any property damage by reason of breach of contract or any property damage caused by work of ESM; and (3) there is no coverage under the policy because of a lack of compliance with the notice requirements contained within the policy.

Conclusions of Law

The construction and interpretation of an insurance policy is a question of law for the court to decide. Johnson v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 206 (Iowa 1995) (citation omitted). The controlling consideration in interpreting insurance policies is the intent of the parties. Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa 1997) (citing Pierce v. Farm Bureau Mut. Ins. Co., 548 N.W.2d 551, 555 (Iowa 1996)). Ordinarily, intent is determined from the language of the policy unless the policy is ambiguous. Id. (citing Kibbee v. State Farm Fire Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994)). When a policy term is not defined within the policy, the term is given its ordinary meaning.Pierce v. Farm Bureau Mut. Ins. Co., 548 N.W.2d at 555. Courts will not give a strained or unnatural reading to the words of a policy to create ambiguity where there is none. West Trucking Line, Inc. v. Northland Ins. Co., 459 N.W.2d 262, 263 (Iowa 1990) (citation omitted).

"Whether the relevant facts trigger the duty to defend depends, of course, on the actual language of the insurance contract and its interpretation." Norwald Ready Mixed Concrete, Inc. v. Travelers Ins. Cos., 246 F.3d 1132, 1136 (8th Cir. 2001). Under Iowa law:

[t]he cardinal principle in the construction and interpretation of insurance policies is that the intent of the parties at the time the policy was sold must control. Except in cases of ambiguity, the intent of the parties is determined by the language of the policy. An ambiguity exists if, after the application of pertinent rules of interpretation to the policy, a genuine uncertainty results as to which one of two or more meanings is the proper one. Because of the adhesive nature of insurance policies, their provisions are construed in the light most favorable to the insured. Exclusions from coverage are construed strictly against the insurer.

Id. (quoting Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Federated Mut. Ins. Co., 596 N.W.2d 546, 550 (Iowa 1999)).

"Property Damage" Caused by "Occurrence"

ESM argues that the roof began to leak after an ice storm following completion of construction and this constituted an "accident." ESM further argues that the damage to the interior of the UNI-Dome constituted "property damage" caused by continuous and repeated exposure to the leaking roof. It contends that it never intended the roof to leak, in fact, its foreman on the project stated that he returned several times to attempt to fix the leak with the expectation that it could be fixed.

General Casualty argues that ESM expected the roof to leak even before construction was completed so there was no "occurrence" giving rise to coverage under the policy. General Casualty contends that ESM knew it was performing defective work on the roof, therefore, damages to the interior were expected as well. General Casualty further contends that it does not matter if the defect was in ESM's construction of the roof or if it was a design defect. The fact remains that there cannot be an "accident" if there was a defect somewhere in the process. General Casualty further contends that a roof is expected to protect a structure against the elements and the natural result of an improper design or construction of the roof is it will leak and cause damage to the interior of the structure.

The CGL policy in this case covers "property damage" caused by an "occurrence." "Occurrence" is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy does not define "accident." However, the Iowa Supreme Court has defined "accident" as used in insurance policies to mean:

an undesigned, sudden, and unexpected event, usually of an afflictive or unfortunate character, and often accompanied by a manifestation or force. . . . [G]iving to the world the meaning which a man of average understanding would, we think ["accident"] clearly implies a misfortune with concomitant damage to a victim, and not the negligence which eventually results in that misfortune.

Pursell Constr., Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W.2d 67, 70 (Iowa 1999) (quoting Central Bearings Co. v. Wolverine Ins. Co., 179 N.W.2d 443, 448 (Iowa 1970)). The parties do not dispute that there was property damage to the UNI-Dome roof structure itself and its interior. The dispute arises over whether or not there was an "occurrence" under the terms of the policy. ESM contends that the "repeated and continuous exposure" to harmful conditions, specifically, the leaking roof, constituted an "occurrence" and a showing of an "accident" in addition is not required. General Casualty concedes that there was property damage but argues that the policy requires an "accident" in addition to the "continuous and repeated exposure" to harmful conditions. It argues that the definition of "occurrence" in the policy does not mean an "accident"or "continuous or repeated exposure" to conditions, rather, there must also be an "accident" in addition to the "continuous and repeated exposure" to harmful conditions. General Casualty further argues that because ESM did in fact expect that the roof would leak even before construction was completed, there could be no "accident" in this case.

The precise wording used in the policy must be examined to determine whether or not an "accident" is required in addition to the "continuous and repeated exposure" to conditions. In Dico, Inc. v. Employers Insurance of Wausau, the policy defined an occurrence as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Dico, Inc. v. Employers Ins. of Wausau, 581 N.W.2d 607, 612 (Iowa 1998). The Iowa Supreme Court held that the phrase "continuous or repeated exposure to conditions" was considered to be a subset of the general requirement that an accident must have occurred. Id. Therefore, the court decided that case based on the absence of an accident without even applying the "repeated exposure to conditions" language. Id. In Interstate Power Company v. Insurance Company of North America, the policy provided that "`occurrence' means either an accident happening during the policy period or a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to or destruction of property during the policy period."Interstate Power Co. v. Ins. Co. of North Am., 603 N.W.2d 751, 755 (Iowa 1999). In that case, the Iowa Supreme Court found that "[t]he `repeated exposure to conditions' element of the definition is stated as an alternative to the `accident' element." Id. Because the policy language was different in these two cases, the Iowa Supreme Court came to different conclusions as to what constitutes an "occurrence." The language used to define "occurrence" in Dico, Inc. was almost identical to the language used in this case. Therefore, this court finds that there must have been an "accident" for there to have been an "occurrence" and the phrase "continuous or repeated exposure" to harmful conditions is to be considered a subset of the general requirement that an "accident" must have occurred. See Dico, Inc. v. Employers Ins. of Wausau, 581 N.W.2d at 612.

In this case, there was a "continuous or repeated exposure to substantially the same general harmful conditions" resulting in property damage. The interior of the UNI-Dome was continually exposed to snow and ice beginning in 1998. The issue therefore is whether there was an "accident."

ESM has only been charged with negligence in Penn-Co's third-party complaint. This court concludes that negligence resulting in damage to property other than that which had work performed on it constitutes an "accident" within the meaning of the policy. Other courts have similarly held that the negligent installation of a roof which caused leaks and ultimately property damage was an "occurrence" within the meaning of an insurance policy. See, e.g., United States Fidelity Guar. Co. v. Bonitz Insulation Co., 424 So.2d 569 (Ala. 1982). In Bonitz, the Alabama Supreme Court held that when a "continuous or repeated exposure to conditions" within the definition contained in the policy resulted in property damage, there was an "occurrence" under the policy. Id. at 571. The policy in that case defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the Insured." Id. The court concluded that the term "accident" does not necessarily exclude human fault called negligence.Id. (citation omitted).

The Louisiana Appellate Court came to a similar conclusion in Iberia Parish School Board. The court in that case, in which the definition of "occurrence" was almost identical to the one in this case, held that allegedly improper construction causing damage to the roof triggered an "occurrence" under the terms of the policy. Iberia Parish Sch. Bd. v. Sandifer Son Constr. Co., Inc., 721 So.2d 1021, 1024 (La.Ct.App. 1998).

A federal court interpreting Michigan law held that there may be an "occurrence" even if the insured's actions were negligent. Underwriters at Interest v. SCI Steelcon, 905 F. Supp. 441, 446 (W.D.Mich. 1995). In interpreting the meaning of "occurrence" and "accident" under Michigan law, the court found that:

it appears that where an insured's defective workmanship causes damage only to the insured's work product, that damage is not the result of an occurrence within the meaning of the policies. But where that defective workmanship also causes damage to the property of others which was unforeseen and unexpected, an `accident' exists within the meaning of the policies.

Id. (internal citations omitted). The court went on to hold that "it is clear that there may be an `occurrence' even though the policyholder's actions were negligent." Id.

This court finds that in Iowa, negligence that causes damage to property other than the insured's own work product constitutes an "accident" under the policy in question. In Pursell, the Iowa Supreme Court held "that defective workmanship standing alone, that is, resulting in damages only to the work product itself, is not an occurrence under a CGL policy." Pursell Constr., Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W.2d at 71. The court emphasized the fact that the claim was for coverage of the property on which the defective work was performed only and not for any consequential damages to other property. That emphasis leads this court to believe that the Iowa Supreme Court would similarly hold that if the claim was for coverage of the property that was consequentially damaged due to negligent work, that would be an "occurrence" within the meaning of the policy. In this case, allegedly defective workmanship was performed on the roof by ESM. However, the damages UNI seeks are not limited to the roof. In addition to damages for the roof, UNI alleges damages to the interior of the UNI-Dome and loss of revenues from cancelled games because of the leaking roof.

Further, it should be pointed out that it is unlikely that ESM expected and intended the damage to the interior of the UNI-Dome or that UNI would lose the use of their facility as a result of their faulty workmanship on the roof. "While such loss of use was foreseeable, it was not substantially certain that [ESM's] actions would result in a loss of use." Underwriters at Interest v. SCI Steelcon, 905 F. Supp. at 446. It should also be pointed out that the absence of language requiring a lack of "intent" or "expectation" in the definition of "occurrence" further indicates that there was an "occurrence" in this case.

The Eighth Circuit has held that under Iowa law, "defective workmanship, regardless of who is responsible for the defect, cannot be characterized as an accident under Iowa law." Norwalk Ready Mixed Concrete, Inc. v. Travelers Ins. Cos., 246 F.3d 1132, 1137 (8th Cir. 2001). This holding is consistent with this court's conclusion that the damage to the roof itself does not constitute an "accident" because it is the very property that had allegedly defective workmanship performed on it. However, the consequential damages to the interior of the UNI-Dome and the lost revenues were an "accident." While performing its work on the roof of the UNI-Dome, it is highly unlikely that ESM intended or expected these damages to occur. ESM was aware of the leaking roof and continually tried to fix it through 2000. Recently, an Ohio state appellate court held that the consequential damages of faulty workmanship is an "occurrence" under the terms of the policy. The policy in that case defined an "occurrence" as "an accident, including continuous exposure, or repeated exposure to substantially the same general harmful conditions." Ind. Ins. Co. v. Alloyd Insulation Co., 2002 WL 1770491, *4 (Ohio App. 2 Dist. Aug. 2, 2002). The court held that the alleged faulty workmanship itself is not covered but the results of the defects are.Id. This court similarly holds that, after looking at the policy as a whole, the damage done to the roof cannot constitute an "occurrence" but the consequential damages that resulted from the faulty workmanship done on the roof by ESM did constitute an "occurrence" under the terms of the policy. In other words, when an insured's defective workmanship causes damage only to their own work product, that damage is not the result of an "occurrence" within the meaning of the policy. See Underwriters at Interest v. SCI Steelcon, 905 F. Supp. at 446. However, if the defective workmanship also causes damage to other property which was unforeseen or unexpected, an "accident" occurs within the meaning of the policies. See id. The resulting property damage from the alleged improper construction triggers an "occurrence" under the policy, however, whether coverage for such an occurrence is excluded by some exclusion in the policy is a separate, very important inquiry. See Oxner v. Montgomery, 794 So.2d 86, 92 (La.Ct.App. 2001).

Applicable Policy Exclusions

General Casualty argues that if the court does find an "occurrence," then certain policy exclusions apply to deny coverage. In its letter denying coverage, General Casualty listed several policy exclusions, however, it has abandoned most of those and now argues that only two exclusions, (a) and (j)(6), apply. As previously mentioned, "rule[s] of construction in insurance cases [require] doubt or ambiguity to be construed strictly against the insurer and liberally in favor of the insured." Goodsell v. State Auto. Cas. Underwriters, 153 N.W.2d 458, 461 (Iowa 1967).

The first provision in the policy relied upon by General Casualty excludes "[p]roperty damage to: . . . (6) [t]hat particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it." General Casualty argues this exclusion applies because it excludes from coverage property damage to any property that must be restored, repaired, or replaced due to the defective work of the insured. This exclusion is sometimes phrased the "business risk" exclusion. General Casualty further contends that the petition in the underlying action alleges that ESM's work did not meet contractual standards and this was a normal business risk that was within ESM's control. ESM argues that this exclusion does not apply to exclude coverage because work done by ESM was not incorrectly performed, rather, it was a design defect that caused the damage. It further contends that even if it did incorrectly perform the work, this exclusion only prevents coverage for replacement or repair of the roof and not for the other property that was damaged. In other words, ESM argues that this exclusion only applies to property that must be repaired, restored or replaced because work was incorrectly performed on it and ESM only performed work on the roof.

There are two basic types of risk assumed by a contractor. The first is the "business risk" in which the contractor guarantees that construction will be performed in a reasonable manner and if it is not, the contractor will repair or replace the defective work. The business risk doctrine is an expression of public policy applied to the insurance coverage provided under CGL policies. See O'Shaughnessy v. Smuckler Corp., 543 N.W.2d 99, 102 (Minn.App. 1996). The risk that an insured's product will not meet contractual standards is a business risk not covered by a CGL policy.Bor-Son Bldg. Corp. v. Employers Comm. Union Ins. Co., 323 N.W.2d 58, 63 (Minn. 1982). The second type of risk assumed by a contractor is the risk of causing damage to property other than the contractor's work itself. Under the business risk doctrine, harm to the property of third parties caused by the insured's defective work is not excluded from coverage.Sphere Drake Ins. Co. v. Tremco, Inc., 513 N.W.2d 473, 479 (Minn.App. 1994).

In this case, there are exclusions in the policy that remove a covered risk from insurance coverage. Exclusion (j)(6) unquestionably excludes coverage for the business risk incurred by the insured, in other words, the risk ESM took on to ensure its work would be performed satisfactorily. Because ESM's allegedly faulty workmanship resulted in damage to property other than its own product, UNI alleges damages to that property in addition to the damage to the roof itself. If only the damage to the roof was claimed by UNI, this exclusion would apply to deny ESM any coverage under the policy. Where the insured's workmanship is defective, this exclusion unambiguously excludes coverage as to damage done to that property on which the workmanship was faulty. However, it does not exclude coverage as to damages to property other than the property on which the faulty workmanship was performed. The policy specifically states that only the damage to the property on which faulty work was performed on it is excluded from coverage.

Because UNI also claims damages to the seats, floor, and loss of use of the facility, coverage is not excluded as to this property. "[T]here can be no doubt that, if the occurrence or accident causes damage to some other property than the insured's product, the insured's liability for such damage becomes the liability of the insurer under the policy."United States Fidelity Guar. Co. v. Bonitz Insulation Co., 424 So.2d 569, 573 (Ala. 1982) (citation omitted). Therefore, this court finds that exclusion (j)(6) is designed to exclude coverage for faulty workmanship that is within the insured's control and does not apply to preclude coverage for the damage done to property other than the property that was improperly worked on itself. See Thommes v. Milwaukee Mut. Ins. Co., 622 N.W.2d 155, 160 (Minn.App. 2001) (holding an exclusion with identical language as in this case was a business risk exclusion designed to exclude coverage for faulty workmanship that is within the insured's control). The exclusion applies to relieve General Casualty of liability regarding the cost to repair or replace the roof because ESM's work on it was faulty, however, it does not relieve General Casualty of liability for the damage to property other than the roof itself.

The other provision General Casualty argues precludes coverage excludes "`property damage' expected or intended from the standpoint of the insured." General Casualty argues that the language specifically excludes any expected or intended damages and these terms do not mean the same thing. It further argues that this provision applies because ESM believed that there was a substantial probability that the roof would leak and the results were normal damages resulting from that leak.

ESM first argues that General Casualty should be estopped from raising this exclusion for the first time in its reply brief, however, the court disagrees because in its initial letter to ESM, General Casualty included a complete reservation of rights. Further, an insurance company should not be estopped from raising a potentially applicable policy exclusion. ESM further contends that even if General Casualty is allowed to argue this exception, it does not deny coverage because it only applies to intentional acts of the insured and General Casualty cannot show that ESM acted intentionally in causing the damages. ESM argues that, at best, it only acted negligently.

This exclusion, often called the "intentional acts exclusion," precludes coverage for damages intended or expected from the standpoint of the insured. Therefore, it is applicable only if ESM intended or expected to cause the damages that resulted from its faulty workmanship. The court does not believe that "intentional" and "expected" should be equated with "foreseeable." "Defining `expected injury' as a foreseeable injury would have the same effect of unduly limiting coverage under a liability insurance policy since foreseeability is generally an essential element in establishing liability." Cont'l W. Ins. Co. v. Toal, 244 N.W.2d 121, 125 (Minn. 1976). Courts that have interpreted the "expected or intended" injury exclusion have construed the term "expected" to mean a "high degree of certainty." Id. at 125 n. 3; see also State Farm Fire Cas. Co. v. Muth, 207 N.W.2d 364 (Neb. 1973); Vanguard Ins. Co. v. Cantrell, 503 P.2d 962 (Ariz. 1972). Even if ESM performed faulty work on the roof, there is no evidence that it intended to damage to the interior of the UNI-Dome or cause the loss of use of the facility. In fact, in the original Black Hawk County action, Penn-Co is only charged with negligence, breach of contract, and breach of implied and express warranty in the construction of the UNI-Dome. In its third-party complaint, Penn-Co contends that all of the work complained of by UNI in the original action was the responsibility of Penn-Co's subcontractors, including ESM. Likewise, Penn-Co's claim against ESM is also one for negligence. There is no evidence that ESM intended or expected these damages to result from its faulty workmanship, therefore, this exclusion also does not preclude coverage.

In determining whether an insurance company has a duty to defend its insured against claims brought by another party, courts look first to the facts set forth in the pleadings. Employer's Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639, 642 (Iowa 1996) (quoting First Newton Nat'l Bank v. Gen. Cas. Co. of Wis., 426 N.W.2d 618, 623 (Iowa 1988)). "[An insurer's] duty to defend arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case and is not dependent on the probable liability to pay based on facts ascertained through trial." McAndrews v. Farm Bureau Mut. Ins. Co., 349 N.W.2d 117, 119 (Iowa 1984) (quoting 7C J. Appleman, Insurance Law and Practice § 4684, at 83 (Berdal ed. 1979)). "In deciding the scope of a liability policy's coverage, a court must compare the policy language with the facts pled in the underlying suit to see if the claim falls within the express terms of the policy; the legal nomenclature the plaintiff uses to frame the suit is relatively unimportant." Employer's Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d at 642-43 (citation omitted).

This court has already determined that there was an occurrence under the terms of the policy and no exclusion applies to deny coverage. In determining whether there is a duty to defend, the underlying complaint must be examined to see if the claim arguably falls within the express terms of the policy. The underlying petition alleges negligence so there is possible liability to pay based on the facts alleged. However, ESM must show that it complied with all the necessary policy provisions, specifically, with the notice provision.

Compliance With Notice Provision

ESM argues that General Casualty cannot show a lack of compliance with the notice provisions in the policy nor can General Casualty show that the alleged failure to timely notify prejudiced it. ESM argues that because the policy did not specifically state that giving notice is a condition precedent to coverage, it should not be construed as such. ESM further argues that even if notice is found to be a condition precedent to coverage, it substantially complied with the provision and even if it did not substantially comply, the failure to do so was excused or waived by General Casualty and any alleged failure to comply was not prejudicial to General Casualty. General Casualty argues that if the court finds there was an occurrence, ESM breached the notice provisions of the policy by failing to report the occurrence until after suit was filed. It claims that notice is a condition precedent to coverage and ESM failed to substantially comply with the provision because it did not notify General Casualty "as soon as practicable." Therefore, General Casualty argues coverage is precluded for failure to comply with a condition precedent. It further contends that ESM did not offer sufficient evidence of excuse or waiver and ESM also did not offer sufficient evidence to rebut the presumption of prejudice to General Casualty.

The applicable notice provision in the policy provides: "[y]ou must see to it that we are notified as soon as practicable of an `occurrence' or an offense which may result in a claim." It further provides: "[i]f a claim is made or `suit' is brought against any insured, you must . . . notify us as soon as practicable. You must see to it that we receive written notice of the claim or `suit' as soon as practicable." Finally, it provides that the insured must "immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or `suit.'"

The law regarding notice provisions is well-settled in Iowa.

When a notice provision is written as a condition precedent to policy coverage in an insurance contract, substantial compliance with such a condition must be shown by the claimant. Absent the claimant proving substantial compliance, in order to maintain an action against the insurer, the claimant must show that failure to comply was excused, or that the requirements of the condition were waived, or that failure to comply was not prejudicial to the insurer. Unless the claimant meets this burden of showing substantial compliance, or excuse from compliance, or waiver or requirement, or lack of prejudice to the insurer, prejudice to the insurer must be presumed. Although this presumption of prejudice is rebuttable, unless it is overcome by a satisfactory showing of lack or prejudice, it will defeat the insured's recovery. Only when the insured has satisfactorily shown excuse or legal justification, such as reasonable mistake or trivial occurrence, does the burden to show actual prejudice fall upon the insurer. Met-Coil Sys. Corp. v. Columbia Cas. Co., 524 N.W.2d 650, 654 (Iowa 1994) (internal citations omitted).

The policy in this case requires notice in two situations. In the event of an occurrence or an offense which may result in a claim, the insurer must be notified "as soon as practicable." If a claim is made or "suit" is brought, the insurer must be notified as soon as practicable and the insurer must immediately send copies of any demands, notices, summonses or legal papers received in connection with the suit or claim.

The first question the court must answer is whether or not notice was made a condition precedent for coverage in the insurance contract. When a notice provision is made a condition precedent, it "is one of the basic and essential provisions of the contract and is of the essence of the agreement." Id. at 655 (citing Henderson v. Hawkeye-Sec. Ins. Co., 106 N.W.2d 86, 92 (Iowa 1960)). "In order for timely notice to be a condition precedent to coverage, the insurance policy must use language expressly to that effect or language that necessarily implies that the provision is a condition precedent." Kimbrell v. Union Standard Ins. Co., 207 F.3d 535, 536 (8th Cir. 2000) (citing Hope Spoke Co. v. Md. Cas. Co., 143 S.W. 85, 86-97(Ark. 1912)). The notice provision in this case was listed under the heading, "Commercial General Liability Conditions" and the subheading "Duties In The Event Of Occurrence, Offense, Claim Or Suit." Contract language is to be given a reasonable meaning and it is reasonable to find that notice is required as a condition precedent for coverage under the policy in question. This court concludes that the policy "conditions" stating that the insured must give notice "as soon as practicable" and immediately forward legal papers establish the necessary implication that the notice provisions are conditions precedent to recovery. See id. at 537.

The question then becomes whether ESM substantially complied with the notice provision. General Casualty's contract with ESM required notice "as soon as practicable" of an "occurrence" or an offense which may result in a claim. The requirement of "as soon as practicable" means that the insured must give notice "within a reasonable time under all the circumstances." United States Fidelity Guar. Co. v. Bonitz Insulation Co., 424 So.2d at 572 (citing Am. Liberty Ins. Co. v. Soules, 258 So.2d 872 (1972)). "In making this determination, the only factors to be considered are the length of the delay in giving notice and the reasons therefor." Id. "If the insured offers evidence of mitigating circumstances, then conflicting inferences may be drawn as the reasonableness of the delay, and the question becomes one for the trier of fact." Id. at 572-73.

"[T]he determination of the fundamental issue, whether notice of the occurrence or claim was given to the insurer within a reasonable time, rests on the reasonableness of the delay." United States Fidelity and Guar. Co. v. Baldwin County Home Builders Ass'n, Inc., 770 So.2d 72, 75 (Ala. 2000). Ordinarily, the question of whether notice has reasonably been given is one of fact for the jury. Only "`where the facts are not in dispute, and the inferences are certain, [the question of whether timely notice was given] is a question of law for the court.'" Met-Coil Sys. Corp. v. Columbia Cas. Co., 524 N.W.2d at 656 (quoting Estate of Linderholm v. State Auto. Cas. Underwriters, 169 N.W.2d 561, 564 (Iowa 1964)). In this case, General Casualty contends that, as a matter of law, ESM failed to give adequate notice of an occurrence.

ESM notified General Casualty on May 4, 2001, a few days after Penn-Co filed its third-party petition. In its notice, ESM identified the occurrence as taking place on April 1, 2000. ESM acknowledges that it did not notify General Casualty for over a year after the named occurrence and over two years from the time the roof first began to leak. However, ESM argues that during the period of 1999 to 2000, it was continually trying to fix the leak so it did not believe that a claim was likely to result from its work on the roof. Mr. Eng, the president of ESM, stated that it was not entirely unusual for leaks to occur on roofs ESM was working on that the subsequent repairs done to the roof were all routine "punch list" items. Mr. Eng and the foreman on the project, Mr. Risbeck, both stated that they were unaware of the extent of the problem and Mr. Risbeck stated in his deposition that he feels to this day that the problem with the roof could be fixed. Therefore, ESM contends that it saw no reason to notify General Casualty before suit was filed against it.

General Casualty argues that the ESM's notification was unreasonable because ESM should have been aware of a claim or suit when Penn-Co made a claim on its performance bond and Mr. Eng subsequently retained an attorney. General Casualty argues that Mr. Eng would not have retained an attorney if he did not believe there was legal trouble brewing. Therefore, ESM should have notified General Casualty at that time because a "claim" was being made against it. General Casualty further argues that ESM cannot "have it both ways," meaning if the leaking roof was an occurrence as ESM argues, then it triggered the duty to notify General Casualty "as soon as practicable" and notice two years later is not considered substantial compliance. However, ESM argues that the notice provision does not require notice be given as soon as the occurrence took place, rather, it only requires notice of an occurrence which may result in a claim. It argues the first sign of a claim was Penn-Co's third-party complaint. Up to that point, ESM continued to fix the leak as part of its "punch-list" items. ESM further argues that the claim on its performance bond has no relevance as to how the insurance contract should be construed. The court also points out that ESM's argument that Mr. Eng's notification to Mr. Martens of the leak constituted notice to General Casualty is irrelevant. It is well-settled law that an insurance broker, such as Mr. Martens, is presumptively the agent of the insured, ESM, and not of the insurer, in this instance, General Casualty. See Bell v. O'Leary, 744 F.2d 1370, 1372 (8th Cir. 1984). The Eighth Circuit has specifically addressed this issue and held:

[u]nless there are special conditions or circumstances in the case, [a broker] is not the agent of the insurer, and he may not be converted into an agent for the insurance company without some action on the part of the company or the existence of some facts from which his authority to represent it as an agent may be fairly inferred.

Travelers Indem. Co. v. Nat'l Indem. Co., 292 F.2d 214, 220 (8th Cir. 1961). ESM has not alleged nor has this court ascertained any special circumstances that would warrant a finding that Mr. Martens is an agent of General Casualty.

This court is not able to conclude as a matter of law that it was unreasonable for ESM to wait until the third-party complaint had been filed to notify General Casualty or that the thirteen month delay from the time of the named occurrence or the twenty-eight month delay from the time the roof first leaked in serving direct notice to General Casualty was or was not substantial compliance with the notice requirements of the policy. The court finds this evidence sufficient to raise conflicting inferences as to the reasonableness of the notice and whether ESM's actions constituted substantial compliance with the provisions or not.

Based upon the foregoing,

IT IS ORDERED

1. The defendant's August 20, 2002, motion for summary judgment (docket number 8) is granted in part and denied in part as set forth in the text above.

2. The plaintiff's October 11, 2002, cross-motion for summary judgment (docket number 12) is denied.