Cantex v. Princeton

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

CANTEX, INC., a Delaware corporation, Plaintiff/Appellant,

v.

PRINCETON EXCESS AND SURPLUS LINES INSURANCE COMPANY,
a Delaware corporation, Defendants/Appellees.

No. 1 CA-CV 15-0280
FILED 6-2-2016

Appeal from the Superior Court in Mohave County
No. L8015CV201407073
The Honorable Charles W. Gurtler, Jr., Judge

VACATED AND REMANDED

COUNSEL

Squire Patton Boggs (US) LLP, Phoenix
By George I. Brandon, Donald A. Wall, Gregory A. Davis (argued),
Gregory S. Schneider
Counsel for Plaintiff/Appellant

Wright Welker & Pauole PLC, Phoenix
By Matthew W. Wright, Christopher S. Welker (argued)
Counsel for Defendant/Appellee, Princeton Excess and Surplus Lines Insurance

MEMORANDUM DECISION

Judge John C. Gemmill delivered the decision of the Court, in which
Presiding Judge Andrew W. Gould and Judge Margaret H. Downie joined.
 CANTEX v. PRINCETON et al.
Decision of the Court

G E M M I L L, Judge:

¶1 Cantex, Incorporated (“Cantex”) appeals the Mohave County
Superior Court’s grant of summary judgment in favor of Princeton Excess
and Surplus Lines Insurance Company (“PESLIC”).1 For the following
reasons, we vacate the superior court’s grant of summary judgment in favor
of PESLIC and remand for further proceedings consistent with this
decision.

BACKGROUND

¶2 Cantex contracted with RBR Construction, Incorporated
(“RBR”) to construct a building and a 480,000 square foot concrete slab (“the
work”) at Cantex’s facility in Kingman. During the course of the
construction, Cantex discovered that a portion of RBR’s work was defective,
causing the concrete to crack, spall, and deteriorate. After litigation in
superior court, RBR was found at fault for the defective work. The court
awarded Cantex over $3.9 million in damages against RBR.

¶3 After entry of the judgment, RBR assigned to Cantex all of its
rights under applicable insurance policies, including RBR’s primary policy
issued by Old Republic Insurance Company (“ORIC”) and RBR’s excess
insurance policy issued by PESLIC (“the PESLIC policy”). ORIC paid
Cantex its policy limit of $1 million, but PESLIC denied coverage for RBR
and refused to pay in satisfaction of Cantex’s judgment. Cantex then filed
an insurance coverage action, alleging, as relevant here, breach of contract
against PESLIC and seeking declaratory relief.

¶4 PESLIC filed a motion to dismiss Cantex’s suit, arguing there
was no coverage as a matter of law under an exclusion for property damage
contained in section I(A)(2)(j)(6) of the insurance policy (“the faulty
workmanship exclusion”).2 Cantex argued it possessed and used the

1 Scottsdale Insurance Company (“Scottsdale”) was originally a party to
this appeal but has since been dismissed by stipulation of the parties.

2 PESLIC issued a “following form” excess policy. That is, the PESLIC
policy adopts the language of the ORIC policy unless otherwise stated. The
PESLIC policy does not itself explicitly include the coverage provisions at
issue here. All references to policy language therefore refer to the ORIC

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portion of the work at issue consistent with the policy’s “products-
completed operations hazard.” Accordingly, Cantex contended the faulty
workmanship exclusion did not apply and PESLIC wrongfully denied
coverage. Cantex also argued PESLIC’s motion to dismiss improperly
relied on materials outside the pleadings and asserted the court should treat
it as “an incomplete and unsupported motion for summary judgment”
under Arizona Rule of Civil Procedure (“Rule”) 56.

¶5 Treating the motion as one for summary judgment, the court
granted judgment in favor of PESLIC. The court determined there was no
genuine issue of material fact because the “contract define[d] the process
and procedure with respect to substantial completion, as well as the
intended use and the occupancy; and that the policy of [PESLIC] expired
prior to the architect’s certification for the intended use.” Cantex timely
appeals, and this court has jurisdiction under Arizona Revised Statutes
(“A.R.S.”) § 12-2101(A).

DISCUSSION

¶6 Cantex contends the language of the insurance policies does
not support the court’s ruling and that a question of fact exists as to whether
the PESLIC policy’s coverage applied. We review de novo a trial court’s
grant of summary judgment. Strojnik v. Gen. Ins. Co. of Am., 201 Ariz. 430,
433, ¶ 10 (App. 2001). We view the facts in the light most favorable to the
non-moving party, BAC Home Loans Servicing, LP v. Semper Inv. LLC, 230
Ariz. 587, 589, ¶ 2 (App. 2012), and affirm unless the evidence presented in
support of the judgment has “so little probative value . . . that reasonable
people could not agree with the conclusion advanced,” Orme School v.
Reeves, 166 Ariz. 301, 309 (1990).

¶7 The faulty workmanship exclusion excludes coverage for
“that particular part of any property that must be restored, repaired or
replaced” because “’[RBR’s] work’ was incorrectly performed.” But the
policy further provides that the faulty workmanship exclusion “does not
apply to ‘property damage’ included in the ‘products-completed operations
hazard.’” Section V(16)(a)(2) of the policy provides, in pertinent part, that
the products-completed operations hazard includes:

a. [A]ll “bodily injury” and “property damage” occurring

policy unless otherwise noted. The ORIC policy is a standard Commercial
General Liability coverage form, CG 00 01 12 04.

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away from premises you own or rent and arising out of “your
product” or “your work” except:

...

(2) Work that has not yet been completed or
abandoned. However, “your work” will be deemed
completed at the earliest of the following times:

(a) When all of the work called for in your
contract has been completed.

(b) When all of the work to be done at the job
site has been completed if your contract calls for
work at more than one job site.

(c) When that part of the work done at a job site has
been put to its intended use by any person or
organization other than another contractor or
subcontractor working on the same project.

(Emphasis added.) Accordingly, if the work in question was “completed”
because it was “put to its intended use” by Cantex before the expiration of
the PESLIC policy, it comes within the products-completed operations
hazard, and as a result, the faulty workmanship exclusion does not apply
and coverage exists.

¶8 Cantex argues the superior court erred by finding the
underlying construction contract between Cantex and RBR (“the Cantex-
RBR contract”) unambiguously defined “intended use” to mean
“substantial completion.” Cantex asserts instead that whether the work
was put to its intended use for the purposes of the products-competed
operations hazard is a genuine issue of material fact dependent upon the
intent of the parties, the conduct of the parties, and the status of the work.

¶9 The interpretation of a contract, including whether a contract
is ambiguous, is a question of law this court reviews de novo. See Hartford
v. Indus. Comm’n, 178 Ariz. 106, 111 (App. 1994); Ahwatukee Custom Estates
Mgmt. Ass’n v. Turner, 196 Ariz. 631, 634, ¶ 5 (App. 2000). If a contract
contains ambiguous language, the meaning of such language is subject to
“a factual determination concerning the intent of the parties.” Hartford, 178
Ariz. at 111; Taylor v. State Farm, 175 Ariz. 148, 154 (1993) (holding that when
a contract term is “reasonably susceptible” to more than one interpretation,
extrinsic evidence is admissible to discern the parties’ intent).

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 CANTEX v. PRINCETON et al.
Decision of the Court

¶10 For the products-completed operations hazard to apply, the
work in question must be deemed “complete” because it was put to its
“intended use.” The PESLIC policy does not define the term “intended
use.” To determine whether the work was put to its intended use, the
superior court relied on the Cantex-RBR contract’s detailed provisions for
certifying the work as “substantially complete.” According to the Cantex-
RBR contract, substantial completion is accomplished when the work
conforms to the contract specifications “so that the owner can occupy or
utilize the work for its intended use without disturbance or interruption.”
(Emphasis added.) Relying on this provision, the superior court found that
the definition of “intended use” was synonymous with “substantial
completion,” as that term is used in the Cantex-RBR contract. Cantex did
not obtain a certificate of substantial completion until December 18, 2007.
Because PESLIC’s excess policy expired on November 1, 2007, the superior
court found it did not provide coverage for the damage at issue.

¶11 But regardless of whether the Cantex-RBR contract defines
“intended use,” we cannot say as a matter of law that the PESLIC policy
defines that term in the same way. In the PESLIC policy, subsections (2)(a),
(2)(b), and (2)(c) of the products-completed operations hazard define three
alternatives for determining the point in time at which the work may be
deemed complete. In the first two alternatives, (2)(a) and (2)(b), the policy
uses the words “your contract,” which in context necessarily refer to the
Cantex-RBR contract. Specifically, subsection (2)(a) provides that “’your
work’ will be deemed completed . . . when all of the work called for in your
contract has been completed.” Subsection (2)(b) explains the work is
deemed complete “[w]hen all of the work to be done at the job site has been
completed if your contract calls for work at more than one job site.”
(Emphasis added.) Because the use of “your contract” in these subsections
refers unambiguously to the insured’s construction contract, we agree with
the superior court and PESLIC that the language of the Cantex-RBR contract
is important and potentially persuasive in construing this portion of the
policy language.

¶12 But subsection (2)(c) — the language both parties agree is at
issue here — is different. It provides the third alternative for determining
when the work in question is complete: “that part of the work done at a job
site” will be deemed complete when it “has been put to its intended use.”
In contrast to subsections (2)(a) and (2)(b), subsection (2)(c) does not contain
the words “your contract.” Because “your contract” is not referenced in
subsection (2)(c), the logic of using the Cantex-RBR contract to interpret
“intended use” is diminished. Additionally, the language referring to “that
part of the work done at a job site,” suggests that a “part” or portion of the

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work — less than the whole of the project — may nonetheless be deemed
as having been put to its “intended use” before the rest of the project is
complete. A plain reading of the PESLIC policy, especially when reading
subsection 2(c) in contrast to subsections 2(a) and 2(b), is reasonably
susceptible to Cantex’s interpretation — i.e., that the parties contemplated
a meaning of “intended use” that is not necessarily synonymous with
“substantial completion” as it is used in the Cantex-RBR contract. Even
though PESLIC and the superior court have also set forth a logical
interpretation of the meaning of “intended use,” it is not the only potential
meaning of the term.

¶13 We therefore conclude that the meaning of the policy
language of subsection V(16)(2)(c) is not, on this record, susceptible of
determination as a matter of law. Summary judgment was therefore not
appropriate. The meaning of the words “[w]hen that part of the work done
at a job site has been put to its intended use” is ambiguous and must be
considered on remand in the context of the facts.3

CONCLUSION

¶14 We vacate the superior court’s grant of summary judgment in
favor of PESLIC and remand for further proceedings consistent with this
decision. Both parties have requested attorney fees under A.R.S. § 12-
341.01. We deny PESLIC’s request because it is not the successful party on
appeal. In the exercise of our discretion and because the ultimately
successful party in this litigation is yet to be determined, we also decline to
award attorney fees to Cantex. Cantex is, nonetheless, entitled to its taxable
costs upon compliance with Arizona Rule of Civil Appellate Procedure 21.

:AA

3 Because we hold the court erred by granting summary judgment in favor
of PESLIC, we need not address Cantex’s argument that the superior court
erred by giving Cantex inadequate opportunity to present supplemental
evidence under Rule 56.

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