The Idaho Supreme Court has ruled that the faulty, inadequate, or defective work exclusion in a homeowner's policy did not preclude coverage for the insured's claim that her house had been demolished by a renter who had an option to purchase, but who then never rebuilt her house.
The Case
Shammie L. Fisher owned a single-story house at 2510 N. 34th Street in Boise, Idaho, that had been built in 1965 and that contained 1,152 square feet with an attached one-car garage.
Ms. Fisher married and decided to sell her house. She entered into a “Real Estate Purchase and Sale Agreement” dated January 23, 2012 with Ron Reynoso. The purchase agreement provided that Mr. Reynoso would purchase the property for $153,000; that the purchase was contingent upon him obtaining financing; that he intended to occupy the property as his primary residence; that the closing would occur no later than March 31, 2013; that Mr. Reynoso would lease the property from March 15, 2012, until March 31, 2013; and that if he was unable to close before March 31, 2013, Ms. Fisher would extend the lease on a month-to-month basis for a period up to September 1, 2013.
The purchase agreement also included a provision stating:
Buyer intends to make certain improvements to the property upon possession, with the intent to sell the property for a profit which might be prior to the end of the lease period. The buyer is required to give a monthly update for plans/upgrades.
In conjunction with the purchase agreement, Ms. Fisher and Mr. Reynoso entered into a rental agreement also dated January 23, 2012. It stated that the move-in date was March 1, 2012, although an addendum to the purchase agreement changed the lease start date to March 15, 2012, with the rent prorated accordingly. The rental agreement stated that Ms. Fisher was obligated to rent the property for a minimum term ending on March 31, 2013 and that:
Tenant shall return said premises to Owner is as good condition as when received, reasonable wear and tear excepted.
Ms. Fisher said that, within two months of renting the property to Mr. Reynoso, she learned that he had demolished the entire house down to the foundation. She contacted him, and he agreed to rebuild a house on the foundation. Ms. Fisher said that he commenced doing so, erecting some rough framing of some interior and exterior walls, but that in August 2013 he ceased working on the house and left.
Ms. Fisher then made a claim under an insurance policy she had that had been issued by Garrison Property and Casualty Insurance Company.
Garrison Property denied her claim, and she sued.
The insurer moved for summary judgment, arguing, among other things, that the exclusion for faulty, inadequate or defective work in the policy precluded coverage. The trial court granted summary judgment in favor of Garrison Property, and the dispute reached the Iowa Supreme Court.
The Garrison Property Policy
The perils insured against under Coverage A of the Garrison Property were:
risk of direct loss to property described in Coverage[ ] A … if that loss is a physical loss to property.
The policy then stated:
however, we do not insure loss: …3. excluded under General Exclusions.
The General Exclusions included:
2. We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered….The Idaho Supreme Court's Decisionc. Faulty, inadequate or defective:
(1) planning, zoning, development, surveying, siting;
(2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) materials used in repair, construction, renovation or remodeling; or
(4) maintenance;
of part or all of any property whether on or off the Described Location.
The court vacated the trial court's ruling.
In its decision, the court explained that, for Ms. Fisher's claim to be excluded under the exclusion for faulty, inadequate, or defective work, the direct physical loss to her house must have been caused by faulty, inadequate, or defective design, specifications, workmanship, repair, construction, renovation, remodeling, grading, or compaction of part of any property on or off the insured location.
The court then decided that the cause of the loss was not the failure of Mr. Reynoso to complete the rebuilding of a house on the foundation that remained after he had demolished Ms. Fisher's house because the loss had to be a direct physical loss to “the dwelling on the Described Location.” That is, Ms. Fisher's dwelling at the described location: 2510 N. 34th St., Boise, Idaho.
Therefore, the court ruled, the loss was the destruction of Ms. Fisher's house – not the failure of Mr. Reynoso to build a house on the foundation that remained after he had demolished her house.
Next, the court held that the faulty, inadequate, or defective work exclusion did not apply because the destruction of Ms. Fisher's house was not caused by any faulty, inadequate, or defective workmanship on the part of Mr. Reynoso. In the court's view, the destruction of Ms. Fisher's house also was not caused by anything that Mr. Reynoso did in performing some repair to her house, or by any construction done by Mr. Reynoso that was faulty, inadequate, or defective. Moreover, the court said, the destruction of Ms. Fisher's house also was not caused by Mr. Reynoso's renovation of her house or by his remodeling of it.
Accordingly, it concluded, the faulty, inadequate, or defective work exclusion did not apply to Ms. Fisher's loss.
The case is Fisher v. Garrison Property and Cas. Ins. Co., No. 44117-2016 (Idaho April 28, 2017). Attorneys involved include: James G. Reid, Kaufman Reid, PLLC, Boise, argued for appellant; Jeffrey A. Thomson, Elam & Burke, P.A., Boise, argued for respondent.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].