No Duty to Defend where there is no coverage
While it might be stating the obvious, in National American Insurance Company v. Okemah Management Company, 2008 OK CIV APP 58 , the court held that there was no duty to defend a claim that was excluded under the policy. NAICO's insured, Okemah, was sued for various construction defects in a building. NAICO filed a declaratory judgment action seeking a declaration there was no duty to defend or indemnify its insured because the claims were not covered.
Plaintiffs initially sued for breach of implied warranty and poor workmanship. Plaintiffs later amended their petition to claim that Okemah was guilty of negligence per se for violating the BOCA (Building and Code Administrators) code regarding installation of the EIFS (Exterior Insulation and Finish Systems) system.
NAICO claimed that the policy only covered tort claims, not breach of contract claims and that various exclusions precluded coverage, including 1) Contractual Liability Exclusion; 2) Damage to Your Product Exclusion; 3) Damage to Your Work Exclusion; 4) Building Related Illness Exclusion; 5) Fungi or Bacteria Exclusion; and 6) Exterior Insulation and Finish Systems (EIFS) Exclusion. NAICO contended it did not have any duty to defend where there is no coverage under the policies.
The court found that coverage was clearly excluded by the EIFS exclusion which stated:
This insurance does not apply to "bodily injury", "property damage", "personal injury" or "advertising injury" that arises out of, is caused by, or is attributable to, whether in whole or in part, the following:
a. The design, manufacture, sale, service, construction, fabrication, preparation, installation, application, maintenance or repair, including remodeling, service, correction, or replacement of an "exterior insulation and finish system" or "direct-applied exterior finish system" or any part thereof, or any substantially similar system or any part thereof, including the application or use of conditioners, primers, accessories, flashing, coatings, caulking or sealant in connection with such a system and including any method or procedure used to correct problems with installed or partially installed systems, that was performed by or on behalf of any insured; or . . .
. . . .
An EIFS system is defined as “an exterior cladding or finish system and all component parts therein used on any part of any structure, and consisting of:
(1) A rigid or semi-rigid insulation board made of expanded polystyrene or other materials; and
(2) The adhesive and/or mechanical fasteners used to attach the insulation board to the substrate; and
(3) A reinforced or unreinforced base coat; and
(4) A finish coat providing surface texture and color; and
(5) Any flashing, caulking or sealant used with the system.”
Okemah claimed that in order for the exclusion to apply, it would have had to install or apply all five elements of the EIFS system, as defined in the exclusion. The Court disagreed. The exclusion specifically applies to any property damage that arises out of or is caused by an EIFS system "or any part thereof, or any substantially similar system or any part thereof . . ." The exclusion from coverage is clear and unambiguous, and is not limited to complete systems installed by the insured. Instead, the exclusion was intended to apply to work by the insured that is related to any part of an EIFS system.
The trial court also properly found NAICO did not have a duty to defend Okemah. The liability policies provide that NAICO will have no duty to defend against any suit seeking damages "to which this insurance does not apply." The umbrella policies state NAICO will defend when a suit seeks damages "covered by this policy." There is simply no duty to defend under the policies when there is no coverage for the claims in the underlying suit.
