Obligation of Insurer to Indemnify Insured Does Not Require Suit by Victim

Insurance Commercial General Liability Coverage for Damages to Homes as a Result of Defective Soil Compaction

Desert Mountain Properties, Ltd. Partnership v. Liberty Mutual Fire Ins. Co., 588 Ariz. Adv. Rep. 59 (App., Div. I, August 3, 2010) (J. Johnsen)

CLAIMANTS NEED NOT SUE TO INVOKE INSURANCE COMPANY'S OBLIGATION TO INDEMNIFY FOR INSURED'S DEFECTIVE SOIL COMPACTION AND WHERE INSURER NOT PREJUDICED, VOLUNTEER REPAIRS AND PAYMENTS COVERED

Soil settlement caused cracks and other damages to 50 new homes in North Scottsdale resulting in numerous complaints and claims. The developer paid upwards of $200,000 per home to fix the problem. The developer then sought reimbursement from its insurer Liberty Mutual. The Court of Appeals held there was coverage and sustained a $500,000 jury verdict on Desert's breach of contract claim against Liberty rejecting Liberty's position that because none of the claimants had actually sued Desert it was not required to indemnify.In so holding, the court found that although a court may enforce a legal obligation, no court action is required to create that obligation in the first place. Here invoking the court to enforce the right to indemnity was not required to create that obligation; the insured became "legally obligated to pay as damages" the homeowner's repair costs whether the homeowners sued the carrier or not.Further, where the CGL policy in question did not expressly exclude coverage for breach of contract as opposed to tort, the question became whether an "occurrence has caused property damage" without regard to whether the legal theory for recovery of damages as a result of that occurrence lie in contract or tort. Here the evidence was that the defective soil compaction in fact caused the damages to the homes and that breach of contract and warranty theories were therefore covered under the policy.Additionally, the broad form exclusion of coverage for faulty workmanship on the property damaged was found not to apply where, as here, non-defective property was damaged as a result of faulty workmanship (faulty soil compaction) on other property. Likewise, even though Desert volunteered to make these payments without Liberty's consent there was sufficient evidence that the payments were reasonable and from which the jury could conclude Liberty was not prejudiced by the voluntary payments thus defeating Liberty's claim that its "Voluntary Payments" clause applied to deny coverage.Finally the court found that Desert's legal fees were a necessary expense to secure resolution of the homeowner claims and as such proper damages in this action. There was insufficient evidence to support a claim Liberty's actions rose to the level of tortious bad faith.