                 IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                     January 2000 Session

      BLAKE INDUSTRIES, INC. v. GENERAL AGENTS INSURANCE
                    COMPANY OF AMERICA

                    Appeal from the Chancery Court for Davidson County
                      No. 98-3253-I   Irvin H. Kilcrease, Chancellor



                     No. M1999-01891-COA-R3-CV - Filed July 27, 2000


In this declaratory judgment action, the appellant has appealed to the Court from the order of
dismissal entered in the trial court. Specifically, the trial court found that the insurance contract
between the plaintiff/appellant and the defendant/appellee, a commercial insurance company,
excluded from coverage liability for damage sustained as a result of the plaintiff/appellant’s
workmanship. For the reasons stated herein, we affirm the trial court’s order.

  Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed; and
                                        Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and HOLLY K. LILLARD, J., joined.

Matthew R. Zenner, Nashville, Tennessee, for appellant, Blake Industries, Inc.

James I. Pentecost, Jackson, Tennessee, for appellee, General Agents Insurance Company of
America, Inc.

                                            OPINION

        Blake Industries, Inc., (hereinafter, “Blake”), is a company that installs and services water
treatment equipment. On May 5, 1996, Blake purchased a commercial general liability insurance
policy (hereinafter, “CGL policy”), from General Agents Insurance Company of America, Inc.,
(hereinafter, “GAINSCO”). The policy was to run from May 5, 1996, until May 5, 1997.

       Policy provisions relevant to the case are as follows:

               COMMERCIAL GENERAL LIABILITY COVERAGE FORM

       ....
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement.

       a.     We will 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. We will have the right and duty to
              defend any “suit” seeking those damages. We may at
              our discretion investigate any “occurrence” and settle
              any claim or “suit” that may result. . . .

       ....

2. Exclusions.
       This insurance does not apply to:

       ....

       j.      “Property damage” to:

              ....

              (5)     That particular part of real property on
                      which you or any contractors or
                      subcontractors working directly or
                      indirectly on your behalf are
                      performing operations, if the “property
                      damage” arises out of those
                      operations; or
              (6)     That particular part of any property
                      that must be restored, repaired or
                      replaced because “your work” was
                      incorrectly performed on it.

              ....

       k. “Property damage” to “your product” arising out of it or any part
       of it.

       l. “Property damage” to “your work” arising out of it or any part of it
       and included in the “products-completed operations hazard.”



                                        -2-
The policy also included the following endorsement:

This endorsement modifies insurance provided under the following:

        COMMERCIAL GENERAL LIABILITY COVERAGE PART.

This insurance does not apply to “bodily injury” or “property damage” included
within the “products - completed operations hazard.”

Pertinent definitions set forth in the policy are as follows:

5.      "Impaired property” means tangible property, other than “your
        product” or “your work,” that cannot be used or is less useful
        because:
        a.     It incorporates “your product” or “your work” that is
               known or thought to be defective, deficient,
               inadequate or dangerous; or
        b.     You have failed to fulfill the terms of a contract or agreement;

if such property can be restored to use by:

        a.     The repair, replacement, adjustment or removal of
               “your product” or “your work;” or
        b.     Your fulfilling the terms of the contract or agreement.

....

11.a.   “Products-completed operations hazard” includes all “bodily injury”
        and “property damage” occurring away from premises you own or
        rent and arising out of “your product” or “your work” except:

        (1)    Products that are still in your physical possession; or
        (2)    Work that has not yet been completed or abandoned.

b.      “Your work” will be deemed completed at the earliest of the
        following times:
        (1)    When all of the work called for in your contract has
               been completed.
        (2)    When all of the work to be done at the site has been
               completed if your contract calls for work at more than
               one site.
        (3)    When that part of the work done at a job site has been
               put to its intended use by any person or organization


                                          -3-
                     other than another contractor or subcontractor
                     working on the same project.
       Work that may need service, maintenance, correction, repair or replacement, but
       which is otherwise complete, will be treated as completed.

               ....

       12.     “Property damage” means :
               a.     Physical injury to tangible property, including all
                      resulting loss of use of that property. All such loss of
                      use shall be deemed to occur at the time of the
                      physical injury that caused it; or
               b.     Loss of use of tangible property that is not physically
                      injured. All such loss shall be deemed to occur at the
                      time of the “occurrence” that caused it.

       ....

       14.     “Your product” means:
               a.    Any goods or products other than real property,
                     manufactured, sold, handled, distributed or disposed
                     of by:
                     (1) You;
               ....

       15.     “Your work” means:
               a.    Work or operations performed by you or on your
                     behalf; and
               b.    Materials, parts or equipment furnished in connection
                     with such work or operations.

        On or about January 27, 1997, Blake installed a water softener system in the home of Blaze
and Gina Wattenbarger. On February 17, 1997, the Wattenbargers reported a water leak which Blake
promptly repaired. Nonetheless, the leak caused considerable damage to the Wattenbarger’s home.
The Wattenbargers filed suit in the General Sessions Court of Davidson County seeking more than
$9,000 in damages to their home. The Wattenbargers sought indemnification for damages caused
to their home by (1) Blake’s negligence; (2) breach of express warranty; (3) breach of the implied
warranty of merchantability; and (4) breach of the implied warranty for a particular purpose. The
Wattenbargers’ lawsuit was appealed to the Circuit Court for Davidson County, Blaze and Gina
Wattenbarger v. Blake Water Treatment Technologies, Davidson County Circuit Court No. 98C-
1816. That case eventually settled.




                                                -4-
        During the pendency of the Wattenbargers’ lawsuit, Blake made demands upon GAINSCO
to indemnify and/or defend Blake. The insurance company declined to provide coverage. Blake
subsequently filed a declaratory judgment action in the Davidson County Chancery Court on October
30, 1998. GAINSCO responded by filing a consolidated motion to dismiss, motion for judgment
on the pleadings and an answer. Blake then filed a motion for partial summary judgment on the
issue of GAINSCO’s duty to defend Blake in the Wattenbargers’ case. On May 13, 1999, the
Chancery Court entered a judgment in favor of GAINSCO and dismissed Blake’s lawsuit. Blake
timely filed the notice of appeal on May 17, 1999. The appeal has been perfected and is properly
before this Court for consideration and disposition.

        In considering the appeal of a Rule 12.02(6) Tenn.R.Civ.P. motion to dismiss, the Court
of Appeals is required to take the allegations of the complaint as true and to construe the
allegations liberally in favor of the plaintiff. Pemberton v. American Distilled Spirits Co., 664
S.W.2d 690, 691 (Tenn.1984). Since this appeal is before the Court of Appeals on a question of
law, the scope of the review is de novo with no presumption of correctness for the trial court's
conclusion. Montgomery v. Mayor of the City of Covington, 778 S.W.2d 444, 445 (Tenn. Ct.
App.1988). A motion to dismiss pursuant to Rule 12.02(6) for failure to state a claim upon
which relief can be granted is the equivalent of a demurrer under our former common law
procedure and, thus, is a test of the sufficiency of the leading pleading. Humphries v. West End
Terrace, Inc., 795 S.W.2d 128, 130 (Tenn. Ct. App.1990). Such a motion admits the truth of all
relevant and material averments contained in the complaint but asserts that such facts do not
constitute a cause of action. Id. However, admissions of this nature, made solely in connection
with the motion to dismiss, do not constitute admissions chargeable to the proponent of the
motion for purposes of the litigation as a whole. Anthony v. Tidwell, 560 S.W.2d 908, 910
(Tenn.1977). A complaint should be dismissed for failure to state a claim if it appears beyond
doubt that plaintiff can prove no set of facts in support of its claim that would entitle him to
relief. Pemberton, 664 S.W.2d at 691. Coulter v. Hendricks, 918 S.W.2d 424, 425-26 (Tenn.
Ct. App. 1995).

        Insurance contracts like other contracts should be construed so as to give effect to the
intention and express language of the parties. Interstate Life & Acc. Ins. Co. v. Gammons, 56
Tenn.App. 441, 408 S.W.2d 397 (Tenn. Ct. App. 1966). In construing and applying insurance
policies, the apparent object and intent of the parties must be kept in mind. Dempster Bros., Inc.
v. U.S. Fidelity & Guaranty Co., 54 Tenn.App. 65, 388 S.W.2d 153 (Tenn. Ct. App. 1964).
Language in a contract which happens to be technical or complex to the layman, does not render
it ambiguous, Bartlett v. Philip-Carey Manufacturing Co., 216 Tenn. 323, 330, 392 S.W.2d
325, 328 (Tenn. 1965), and where there is no ambiguity it is the duty of the court to apply to the
words used their usual, natural and ordinary meaning. Ballard v. North American Life & Cas.
Co., 667 S.W.2d 79, 82 (Tenn. Ct. App.1983). The court cannot, under the guise of construction,
make a new and different contract for the parties. United States Stove Corp. v. Aetna Life Ins.
Co., 169 Tenn. 264, 267, 84 S.W.2d 582, 583 (Tenn. 1935). See also Blaylock and Brown
Const., Inc. v. AIU Ins. Co., 796 S.W.2d 146, 149 (Tenn. Ct. App. 1990).



                                               -5-
        Each party has analyzed the various provisions and definitions of the CGL policy in order
to construe the policy in their favor. As a practical matter, GAINSCO need only establish that
one relevant policy provision permitting exclusion applies to the facts of this cause in order to
prevail. Indeed, after exhaustive analysis of the policy, we conclude that the policy does exclude
coverage for the underlying claim.

         Both parties have relied upon Vernon Williams & Son Construction, Inc. v. Continental
Insurance Co., 591 S.W.2d 760 (Tenn. 1979), in which the Tennessee Supreme Court addressed
whether the CGL policy at issue provided coverage to Vernon Williams & Sons Construction for
its failure to perform a construction contract in a workmanlike manner. It is apparent that the
insurance policy at issue in the Williams case contained substantially similar provisions
regarding exclusions as that contained in the CGL policy before this Court. In it analysis, the
Williams court stated:

       All of the cases agree that [the relevant exclusions] clearly eliminate coverage for
       damages confined to the internal defectiveness of the insured’s own work product,
       resulting from defective materials or defective, negligent or unskilled
       workmanship.

Id. at 762.

         The Williams court found that “the policy in question does not cover an accident of faulty
workmanship but rather faulty workmanship which causes an accident.” Id. at 764. The
Tennessee Supreme Court concluded “that the standard comprehensive general liability policy
does not provide coverage to an insured-contractor for a breach of contract action grounded upon
faulty workmanship or materials, where the damages claimed are the cost of correcting the work
itself.” Williams, 591 S.W.2d at 765.

        In light of the foregoing, Blake asserts that exclusions (k) and (l) of the GAINSCO policy
do not exclude coverage in this instance because the damage claimed was collateral damage to
the Wattenbargers’ home which is not confined to the costs of correcting the work itself. Simply
stated, because the Wattenbargers claimed water damage throughout their home, exclusions (k)
and (l) do not apply. Moreover, Blake argues that exclusion (j) does not apply because the
damage claimed was collateral to and outside of the water softener and the particular part of the
property on which Blake worked.

        Since the Williams case was issued, this Court has had the opportunity to address a CGL
policy such as the one at issue in Blaylock and Brown Construction, Inc. v. AIU Insurance Co.,
796 S.W.2d 146 (Tenn. Ct. App. 1990). Blaylock presented the Court with a substantially
similar factual and legal scenario to the case at bar. In Blaylock, the construction company built
a custom home. After completion of the project, the owner discovered a structural defect in the
foundation that resulted in considerable damage to the home. The CGL policy in Blaylock
contained a broad form property damage endorsement which excluded coverage for “property


                                                -6-
damage to work performed by or on behalf of the named insured arising out of such work or any
portion thereof, or out of such materials, parts or equipment furnished in connection therewith.”
Id. at 147-48. The Court concluded:

       In the case at bar, Blaylock and Brown sought to have AIU defend them in a suit
       brought by a contracting property owner which was grounded upon, inter alia,
       breach of contract, breach of warranty and negligence and sought damages
       resulting from the construction performed under the contract between Blaylock
       and Brown and the property owner. To this extent, and to the extent that the same
       definition of property damage is used in the policies, this case is factually identical
       to Williams. We are therefore constrained to agree that the coverage for property
       damage provided by the standard comprehensive general liability policy does not
       extend coverage to an insured-contractor for a breach of contract action such as
       this.

Id. at 152-153.

        As in Williams and as in Blaylock, the GAINSCO CGL policy at issue before us defines
“property damage” to include “[p]hysical injury to tangible property.” Moreover the CGL policy
in the instant case specifically excludes:

       j.         “Property damage” to:
                  ....

                  (5)    That particular part of real property on which you or
                         any contractors or subcontractors working directly
                         or indirectly on your behalf are performing
                         operations, if the “property damage” arises out of
                         those operations; or
                  (6)    That particular part of any property that must be
                         restored, repaired or replaced because “your work”
                         was incorrectly performed on it.

       It is apparent that the Wattenbargers’ claims were grounded in contract and arose out of
Blake’s attempt to fulfill its agreement to install a water softener system. In light of this Court’s
holding in Blaylock, we conclude that GAINSCO’s CGL policy excludes coverage for damages
sustained by Blake as a result of the installation of the water softener system at the Wattenbarger
home. To hold otherwise would make the insurer a guarantor of the insured’s performance.
J.Z.G. Resources, Inc. v. King, 987 F.2d 98, 103 (2nd Cir. 1993).

       Moreover, the GAINSCO’s policy and an endorsement included therein expressly
exclude coverage for property damage included within the products-completed operations
hazard. Specifically, the policy and endorsement provided:


                                                  -7-
       This insurance does not apply to:

       l.      “Property damage” to “your work” arising out of it or any part of it
               and included in the “products-completed operations hazard.”

       This endorsement modifies insurance provided under the following:

               COMMERCIAL GENERAL LIABILITY COVERAGE PART.

       This insurance does not apply to “bodily injury” or “property damage” included
       within the “products - completed operations hazard.”

       The GAINSCO policy defined “Products-completed operations hazard” as:

       11.a.   “Products-completed operations hazard” includes all “bodily
               injury” and “property damage” occurring away from premises you
               own or rent and arising out of “your product” or “your work”
               except:

               (1)    Products that are still in your physical possession; or
               (2)    Work that has not yet been completed or
                      abandoned.

       b.      “Your work” will be deemed completed at the earliest of the
               following times:

               (1)   When all of the work called for in your contract has
                     been completed.
              (2)    When all of the work to be done at the site has been
                     completed if your contract calls for work at more
                     than one site.
              (3)    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.
       Work that may need service, maintenance, correction, repair or replacement, but
       which is otherwise complete, will be treated as completed.

       Blake completed installation of the water softener system in the Wattenbargers’ home on
January 29, 1997. The damage occurred on or about February 17, 1997. Clearly, the work had
been “completed,” as defined in the policy, for nearly three weeks before the incident resulting in
damage occurred. In Butler v. U.S. Fidelity & Guaranty Co., 277 S.W.2d 348 (Tenn. 1955), a
contractor made repairs and improvements to a residence. After the repairs had been completed,


                                                -8-
an occupant fell from the porch after the bannister gave way. In interpreting the insurance policy
in Butler, the Tennessee Supreme Court found no liability on the part of the insurance company
due to the policy’s specific exclusion regarding completed work. Based on the precedent of
Butler, we conclude that GAINSCO is not liable for any damages arising out of the completed
work performed by Blake.

        Blake also raised as an issue on appeal GAINSCO’s failure to defend Blake in regard to
the Wattenbarger case. An insurer’s duty to defend is separate and distinct from the insurer’s
obligation to pay claims under the policy. Jackson Housing Auth. v. Auto-Owners Ins. Co.,
686 S.W.2d 917 (Tenn. Ct. App 1984). An insurer’s duty to defend its insured is determined by
the allegations made in the pleading filed against the insured. Consequently, the duty to defend
is broader than the duty to indemnify. Drexel Chem. Co. v. Bituminous Ins. Co., 933 S.W.2d
471 (Tenn. Ct. App. 1996); American Nat’l Property & Cas. Co. v. Gray, 803 S.W.2d 693, 695-
96 (Tenn. Ct. App. 1990). As succinctly noted by the Sixth Circuit in Aetna Casualty & Surety
Co. v. Sunshine Corp., 74 F.3d 685, 688 (6th Cir. 1996), “[t]he fact that the allegations of the
suit may be groundless does not relieve the insurer of its obligation to provide a defense.”
Likewise, this Court in Drexel, supra, stated,

       [a]n insurer may not properly refuse to defend an action against its insured unless
       “it is plain from the face of the complaint that the allegations fail to state facts that
       bring the case within or potentially within the policy’s coverage.”

Drexel Chem. Co., 933 S.W.2d at 480 (quoting Glens Falls Ins. Co. v. Happy Day Laundry,
Inc., 19784 T.V., 1989 WL 91082 (Tenn. Ct. App. Aug. 14, 1989)).

       Our Supreme Court in St. Paul Fire and Marine Insurance Co. v. Torpoco, 879 S.W.2d
831 (Tenn. 1994), summarized the state of the law as follows:

       It is accepted in the overwhelming majority of jurisdictions that the obligation of a
       liability insurance company to defend an action brought against the insured by a
       third party is to be determined solely by the allegations contained in the complaint
       in that action. . . . Accordingly, if the allegations in the underlying tort actions in
       the instant case are within the risk insured against and there is a potential basis for
       recovery, then American must defend . . . , regardless of the actual facts or the
       ultimate grounds on which . . . liability to the injured parties may be predicated. . .
       . In any event, the pleading test for determination of the duty to defend is based
       exclusively on the facts as alleged rather than on the facts as they actually are. . . .

Id. at 835 (quoting American Policyholders' Ins. Co. v. Cumberland Cold Storage Co., 373
A.2d 247 (Me.1977)).

      The Court, therefore, must review the allegations of the complaint in order to determine
whether the facts alleged are within the risk insured against. The Wattenbargers initiated this


                                                 -9-
lawsuit by swearing out a Civil Warrant against Blake in the Municipal General Sessions Court
of Davidson County, Tennessee, on or about April 8, 1998. The warrant compelled Blake to
answer for

       [d]amages as a result of the defective system installed by the defendant in the
       Plaintiff’s home, caused by (1) the defendant’s negligence, (2) Breach of express
       warranty under T.C.A. 47-2-312, (3) Breach of implied warranty of
       merchantability under T.C.A. 47-2-314, (4) Breach of implied warranty for a
       particular purpose under T.C.A. 47-2-315.

        Clearly, the warrant alleged Blake’s negligence in regard to a completed act - installation
of the system - which is excluded from coverage under the terms of the CGL policy. The
remaining allegations appear to pertain solely to the fitness of the water softener system, as
installed, for its intended purpose. As Blaylock, supra, held, “the standard comprehensive
general liability policy does not extend coverage to an insured-contractor for a breach of contract
action.” 796 S.W.2d at 153. Consequently, given the allegations contained in the civil warrant,
GAINSCO had no duty to defend Blake in the Wattenbarger lawsuit.

        In view of the foregoing analysis, we affirm the order of the trial court dismissing the
lawsuit filed by Blake. Costs on appeal are taxed to appellant, Blake Industries, Inc., and its
surety, for which execution may issue if necessary.



                                                       ___________________________________
                                                       DAVID R. FARMER, JUDGE




                                                -10-
