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Century Fire Sprinklers6/27/2000
Appeal From: Circuit Court of Jackson County, Hon. Charles Atwell
Opinion Vote: REVERSED AND REMANDED. Lowenstein, P.J., Ulrich and Holliger, JJ., concur.
Opinion:
The threshold question presented in this case is: In a suit by an insured against its insurance company, may the insurer rely on exceptions in the policy as a defense via letters of declaration and in answers to discovery, or must the insurer raise the defense of an exclusion by way of an affirmative defense?
FACTS
This appeal arises from the trial court's order of summary judgment in favor of respondent, CNA/Transportation Insurance Company ("CNA"), and against appellant, Century Fire Sprinklers, Inc. ("Century"). The summary judgment was a result of Century filing a suit against CNA, who was Century's Commercial General Liability insurer, for breach of contract and vexatious refusal to pay after CNA refused to defend Century in a suit brought against it by a company for whom Century had installed a fire protection sprinkler system.
Century is a corporation engaged in the design and installation of fire suppression systems in buildings. Century purchased a policy from CNA which provided that CNA would "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." The Policy defines "property damage" as including " oss of use of tangible property that is not physically injured....." The Policy further provides that it applies to "bodily injury" and "property damage" if they were caused by an "occurrence," as long as the bodily injury or property damage occurred during the policy period and within the geographical area contemplated by the Policy. An "occurrence" is defined as "an accident...." Paraphrased, the portion of the exclusions in the policy here denominated as the "business risk" exclusions, do not insure property damage or impaired property due to a deficiency of the insured's work or damages claimed by others for expense or loss of use incurred by others from the insured's work, including work which is withdrawn from use because of a defect or deficiency.
While insured by CNA, Century subcontracted to non-party Clayco Construction Company ("Clayco") to design and install a fire sprinkler system in a building in St. Louis, Missouri. Clayco then filed suit against Century in October 1994, during the period in which CNA insured Century, for breach of contract in that Century failed to properly design and furnish the fire protection system it had subcontracted to furnish. Clayco also alleged in a second count that Century negligently designed and installed the fire system. These allegations and the underlying Clayco lawsuit arose out of the base problem that "the relevant governmental authorities had rejected the fire protection system [designed and installed by Century] as designed in that it was insufficient for the kind of facility in which it was installed." As a result, the building owner was unable to occupy the building.
Century tendered its defense of the Clayco lawsuit to CNA on three different occasions between 1994 and 1996. CNA declined to defend Century against the suit all three times. CNA cited the following three reasons for its refusal to defend: 1) none of the allegations in Clayco's petition indicated that an "occurrence" had taken place within the terms of the Policy; 2) the injury alleged by Clayco did not constitute bodily injury, property damage, personal injury or advertising injury covered under the Policy (the so-called 'business risk' exclusions); and 3) the contract forming the basis for Clayco's first count in its petit
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