Breach of Warranty Not an Occurrence Under Commercial Liability Policy

A recent Missouri Southern District Court of Appeals ruling held that a claim for breach of the implied warranty of habitability was not an occurrence as defined in a builder’s commercial liability policy.

Facts of Case

Homeowners purchased and moved into a house built by Builder. Shortly after moving in, Homeowners noticed water in the lower level.  Water leaked into the lower level repeatedly for months. This caused a number of problems, including a foul odor, wet carpeting, wall damage, and mold and mushroom growth. It got the point that Builder sent crews to clean the house after every hard rain. Homeowners notified Builder of the problems with water leakage, but the problems were not repaired. They asserted a breach of the warranty of habitability because the house was not fit for the use for which it was purchased. Homeowners then sued for the breach of the implied warranty of habitability. At trial, the jury assessed the the Homeowners’ damages at $255,594.

Homeowners then sued Builder’s insurer, Barton Mutual Insurance Company (“Barton”), for equitable garnishment to collect the judgment. Barton denied coverage and contended that Homeowners’ claim was not covered under the commercial liability policy issued by Barton to Builder. At the trail against Barton, Homeowners asserted that the cause of the water leakage was unknown.

The Trial Court Ruling

The trial court ruled in Homeowners’ favor and found the the policy provided coverage. This meant Barton would have to pay the judgment. Barton appealed.

The Ruling on Appeal

The Southern District Court of Appeals found that there was no coverage and reversed the trial court’s judgment.

The policy defined “occurrence” as: an accident and includes repeated exposure to similar conditions. The court noted that an accident is an event that takes place without expectation or foresight. It is an undesigned, sudden and unexpected event. Further, the failure to perform work according to specifications (i.e., a breach of contract) is not an occurrence.

The appellate court noted that a judgment for Homeowners on the theory of breach of the implied warranty of habitability does not require a finding of negligence or foreseeability on the part of Builder. Therefore, because Homeowner admitted the cause of the water leakage was unknown, there was no evidence that the cause of the damage was an “occurrence.” As a result, the appellate court reversed the trial court’s judgment.


Ordinarily, the trial court’s judgment against the insured (Builder) would be binding upon the insurer (Barton). This means that, had Homeowners proceeded against Builder on a theory of negligence or one that required the jury to find that the damage resulted from an occurrence, the insurer could not have contested that fact in the equitable garnishment action. Unfortunately for Homeowners, they needed to establish the damage resulted from an occurrence in their action against Barton and did not do so. Therefore, if possible, plaintiffs should always plead and attempt to proceed to judgment on a theory that would result in insurance coverage. In this way, the insurer will not be able to relitigate certain facts that may relieve it of the obligation to pay the judgment.

The opinion can be found here.

What Is An Underinsured Motor Vehicle?

Do you have underinsured motor vehicle coverage? Have you read your insurance policy? Have you talked with your insurance agent about your coverage? You should, because the coverage you have is probably not the coverage you think you have or want. A recent Missouri Court of Appeals decision illustrates this issue.

Facts of Case

Richard Lawson was a passenger in a vehicle owned and driven by his daughter, Nicole Lawson. A driver in another vehicle, Sophie Rehagen, rear-ended the Lawson vehicle. Richard suffered serious injuries and damages in excess of $150,0000.

Rehagen’s car was insured with liability limits of $100,000. Nicole had insured her car as well, including purchasing underinsured motorist coverage. Under the terms of the policy, Richard qualified as an insured eligible for underinsured motorist benefits. Nicole’s underinsured motorist limits were $50,000 per person and $100,000 per accident.

Nicole’s insurer denied it owed Richard underinsured motorist coverage benefits. Richard filed suit agains the insurance company.

Most people would think that because Richard had suffered injuries in excess of the Sophie’s policy limits ($100,000), he was underinsured. Therefore, he should get underinsured motorist benefits under Nicole’s policy (up to $50,000). Not so.

Insurance Policy Language

Nicole’s policy stated that it would “pay for damages that an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury.”

It went on to define underinsured motor vehicle as “a land motor vehicle or trailer of any type for which the sum of the limits of liability under all bodily injury liability bonds or policies applicable at the time of the accident is less than the coverage limit for Underinsured Motorist Coverage shown on the declarations page.”

The Ruling on Appeal

The Eastern District Court of Appeals agreed with the insurance company that it did not owe underinsured motor vehicle coverage benefits to Richard. The policy was clear and unambiguous. For the underinsured motorist coverage to apply, Sophie’s liability policy limits had to be less than Nicole’s underinsured motor vehicle policy limits. They were not so there was no coverage.

How Does This Affect You?

First, most people think underinsured motor vehicle coverage simply kicks in if the other driver’s policy doesn’t have enough coverage. This is generally not the case. Most policies do not provide underinsured benefits unless the policy’s underinsured limits are greater than the liability limits of the other driver. If you have any question regarding the coverage in your policy, you should contact your insurance agent.

Second, interpretation of these policies can be confusing. If there is any ambiguity in the insurance policy, a court will construe it in favor of coverage. Therefore, if you have an underinsured motor vehicle coverage claim that has been denied or challenged by the insurer, you should consult with an attorney experienced in insurance policy interpretation to review your claim.

The court’s opinion can be found here.

“Owned by” Is Ambiguous Phrase in Homeowner’s Policy

Facts of Case

United Fire and Casualty Company (“United”) issued two homeowner’s insurance policies to Jeffrey Cox. Jeffrey had created a revocable living trust and titled a boat in the name of the trust. While using the boat, one of Jeffrey’s sons started the engine while another member of his party, Zachary Hall, was in the water. The propeller severed Zachary’s foot and he brought a claim.

United denied that the homeowner’s policies provided coverage. United contended that an owned-watercraft exclusion applied. This exclusion provided that there was no coverage for bodily injury arising out of the ownership, maintenance, or use of a watercraft “owned by or rented to an ‘insured’.” The policies did not define the phrase “owned by.” Because of this, Zachary contended that the policy was ambiguous and should be construed against the insurer. If true, this would result in insurance coverage for Zachary’s claims.

The Trial Court Ruling

The trial court agreed with Zachary and found the policy language to be ambiguous. United appealed.

The Ruling on Appeal

The Missouri Southern District Court of Appeals agreed with the trial court and found the policy ambiguous. The court found a distinction between the ownership of property in an individual capacity and ownership as a trustee. The court noted that, when property is titled in the name of a trust, the trustee is the holder of legal title and the beneficiary is the holder of equitable title.

The term “owned” could have multiple meanings. It could mean the possession of legal title or it may mean holding power to destroy, encumber, sell, or dispose of the property. Therefore, when there is a separation of ownership rights through placing property in a trust and a policy does not define “owned by,” the policy is ambiguous. Does it mean holding legal title alone or something else? Because ambiguous policies are construed in favor of coverage, the owned-watercraft exclusion did not apply.  As a result the policy provided coverage for Zachary’s claims.


Under this decision, any policy that does not define ownership risks ambiguity regarding coverage involving property titled in the name of a trust. Insurers should define terms such as “owned” or “owned by” to avoid this result.

For claimants and policy holders, what may seem like a proper denial of coverage may not be so simple if the claim involves property titled in the name of a trust. If you’re involved in a such a claim, either as the claimant or as the defendant property owned, you should consult with an attorney if the insurer is denying coverage.

The entire opinion can be found here.




Underinsured Motorist Coverage – Do You Know Your Coverage?

Underinsured motorist coverage is commonly misunderstood. A recent decision issued by the United States District Court illustrates this point.

Kelly Williams died in a motor vehicle accident when a vehicle driven by Dylan Meyer struck her car. Meyer had an automobile insurance policy with liability limits of $250,000. Williams had an automobile policy with AMCO Insurance Company that provided underinsured motorist coverage with limits of $100,000 per person and $300,000 per accident. Meyer’s  insurer paid Williams’ survivors his policy limits. Because the damages resulting from Williams’ death exceeded that amount, Williams’ survivors filed an underinsured motorist claim with Williams insurance company, AMCO Insurance Company.

Unfortunately for Williams’s survivors, the AMCO insurance policy essentially provided that AMCO’s policy’s underinsured motorist benefits were only payable if the damages were caused  by an “underinsured motor vehicle.” The policy defined an underinsured motor vehicle as “a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage. . . . ” In other words, for the AMCO policy to pay, Williams’ underinsured motorist limits had to be greater than the limits of the motorist that hit her. In this case, the Meyer’s limits were $250,000. Williams’ underinsured motorist coverage limits were “only” $100,000. Consequently, the court held that AMCO did not have to pay Williams’ survivors the underinsured motorist benefits.

Many people purchase underinsured motorist coverage thinking that it applies whenever the other driver doesn’t have enough insurance. Often, that is not the case. Depending how an insurance policy defines an underinsured vehicle or the language of other policy provisions, underinsured motorist coverage may not be triggered. This may occur even if the other driver’s insurance limits are not high enough to cover all the damages sustained. It’s important to understand how an insurance policy works.  Anyone buying underinsured motorist coverage should discuss the policy terms with their insurance agent and make sure they understand how the coverage works.