COURT OF APPEALS DETERMINES THAT GENERAL PARTNER IS NOT INSURED FOR LIABILITY FOR AN ENTITY NOT LISTED AS AN INSURED UNDER THE POLICY

September 4, 2013

In Mid-Continent Casualty Company v. Castagna, the Court held that the trial court erred in failing to grant an insurer’s Motion for Summary Judgment, in part. Mid-Continent Casualty Company issued multiple commercial general liability policies to a residential homebuilder from 2001, 2002, 2003 and 2006 to 2007.  The residential homebuilder insured multiple entities associated with McClure Brothers Custom Homes; however, important to this case the homeowner Castagna entered a contract of sale with McClure Brothers Custom Homes, LP to build her residence. Also, McClure Brothers Homes, LLC was found to be the general partner of McClure Brothers Homes, LP.

In the underlying suit, McClure Brother Custom Homes, LP and McClure Brothers Homes, LLC were sued for foundation defects in a residential construction project. The case underwent arbitration, Mid-Continent defended the homebuilders, and ultimately an arbitration award against the homebuilders was entered in favor of the homeowner. Afterward, the homeowner filed suit to enforce the arbitration award against Mid-Continent.

The homeowner filed a Motion for Summary Judgment against Mid-Continent where she asserted that Mid-Continent was obligated to pay the final judgment confirming the arbitration award because the damages awarded were covered under the 2001, 2002, and 2003 policies. Mid Continent also filed its own Motion for Summary Judgment where it asserted there is no insurance coverage under the policies because the homebuilders were not insured during the policy periods in which the alleged damage occurred, and that there was no evidence that there was an occurrence or property damage prior to 2006 that would trigger coverage.

The Court first addressed, and rejected, Mid-Continent’s argument regarding when the “occurrence” of property damage happened.  The Court first defined the meaning of “occurred” where it noted that “Occurred means when damage occurred, not when discovery [of the damage] occurred.”  The Court reviewed the arbitration record and concluded that there was more than a scintilla of evidence that the homeowner witnessed the development of cracks as early as 2001 and the cracks progressed through 2007. 

The Court next addressed whether the 2006-2007 policy provided coverage for damages awarded to Castagna because the judgment-debtors-homebuilder and its general partner were not actually named insureds under the 2006-2007 policy.  More specifically, McClure Brothers Homes LLC was listed as a named insured, and the arbitrator found that it was the general partner for McClure Brothers Custom Homes, LP, and therefore jointly and severally liable for McClure Brothers Custom Homes, LP’s actions. Importantly, however, McClure Brothers Custom Homes, LP was not listed as a Named Insured under the 2006-2007 policy.

Unlike the earlier 2001 through 2003 policies, the 2006-2007 policy contained language that no organization is an insured “with respect to the conduct of any current or past partnership…or limited liability company, not shown as the named insured. As such, Mid-Continent successfully argued that McClure Brothers Homes LLC was being held liable for acts and omissions of McClure Brothers Custom Homes, LP—an entity that was not a named insured—and the trial court erred in denying Mid Continent’s Motion for Summary Judgment with respect to coverage

Ultimately, the Court determined that Mid-Continent owed coverage under the 2001 through 2003 policies, but it did not owe coverage under the 2006-2007 policy.