DESERT MOUNTAIN PROP. v. LIBERTY MUT. FIRE

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-ins-co-v-tishman-construction-co218 Ill.App.3d 936, 161 Ill.Dec. 551, 578 N.E.2d 1197, 1201-02 (1991).

¶ 39 Liberty Mutual argues, however, that Desert Mountain's claim was excluded under the language contained in subpart D(3) of the Broad Form Property Damage endorsement.

¶ 40 As noted, supra ¶ 7, the superior court held Desert Mountain could not recover expenses incurred in repairing the soil settlement itself, but instead could recover only the expenses of repairing damage that resulted from the soil settlement. See Lennar Corp., 214 Ariz, at 262, ¶ 17, 151 P.3d at 545; Advance Roofing, 163 Ariz, at 482, 788 P.2d at 1233. On appeal, Liberty Mutual contends that the expenses Desert Mountain incurred in repairing damage caused by the faulty soil compaction were excluded by subpart D(3) because they constituted damage "[t]o that particular part of any property . . . the . . . repair . . . of which has been made . . . necessary by reason of faulty workmanship thereon by or on behalf of the insured."

In Advance Roofing, we did not address a business risk exclusion but instead considered whether faulty workmanship, by itself, could constitute an "occurrence" within the meaning of the standard CGL policy. Citing the "fundamental nature of a comprehensive general liability policy," we held that "mere faulty workmanship, standing alone, cannot constitute an occurrence" within the meaning of such a policy. 163 Ariz. at 482, 788P.2d at 1233.

¶ 41 In support of its contention, Liberty Mutual cites Knutson Construction Co. v. St. Paul Fire and Marine Insurance Co., 396 N.W.2d 229, 235 (Minn. 1986), which held this endorsement generally excludes coverage of "claims of defective materials and workmanship giving rise to a claim for damage to the property itself which is the subject matter of the construction project." Other authorities, however, interpret the endorsement to exclude only damage to the defective component of the product but not damage resulting from the defective component. See, e.g., E R Rubalcava Constr., Inc. v. Burlington Ins. Co., 148 F.Supp.2d 746, 749 (N.D.Tex. 2001); Underwriters at Interest v. SCI Steelcon, 905 F.Supp. 441, 444 (W.D.Mich. 1995); Fejes, 984 P.2d at 524; see generally Fortney Weygandt, Inc. v. Am. Manuf. Mut. Ins. Co., 595 F.3d 308 (6th Cir. 2010), and Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 215 (5th Cir. 2009) (interpreting similar exclusions).

¶ 42 Consistent with these cases, we hold the Broad Form Property Damages exclusion does not bar coverage of damage to non-defective property resulting from faulty workmanship. By its terms, the exclusion applies only to the repair of "that particular part of any property . . . made . . . necessary by reason of faulty workmanship thereon." Given the narrow scope of the exclusion, we conclude it applies only to the repair of defective workmanship and not to the repair of damage that resulted from the defective workmanship. Because the endorsement excludes only damage to property "by reason of faulty workmanship thereon," the exclusion did not bar coverage of damage to non-defective property resulting from the faulty soil compaction in this case.

E. The "Voluntary Payments" Clause.

¶ 43 Liberty Mutual next argues the repair costs were not covered because Desert Mountain undertook the repairs voluntarily, without Liberty Mutual's consent. It relies for this argument on a provision in the policies that stated, "No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent."

¶ 44 In Arizona, Property Casualty Insurance Guaranty Fund v. Helme, 153 Ariz. 129, 136, 735 P.2d 451, 458 (1987), the supreme court observed that the purpose of this provision in the standard liability policy is "to protect the insurer's right to a fair adjudication of the insured's liability and to prevent collusion between the insured and the injured person." The court held an insured's breach of the clause ordinarily would "relieve[] a prejudiced insurer of liability under the policy." Id. at 136-37, 735 P.2d at 458-59 (emphasis added).

The clause at issue in Helme stated that the insured "shall not, except at his own cost, voluntarily make any payment, assume any obligation, or incur any expense." 153 Ariz, at 136, 735 P.2d at 458.

¶ 45 Liberty Mutual does not take issue with the superior court's decision, consistent with Hebne, to instruct the jury that it could prevail on this defense only if it proved Desert Mountain's "actions had an actual and substantial adverse [effect] on Liberty Mutual's rights to defend, settle or adjust the claim." On appeal. Liberty Mutual contends Desert Mountain made the repairs without asserting defenses it could have raised had the homeowners sued over the defects and did not obtain releases from the homeowners after repairs were completed. Without addressing whether Desert Mountain breached the voluntary payments clause, we hold there was sufficient evidence from which the jury could conclude that Liberty Mutual was not prejudiced by Desert Mountain's actions.

¶ 46 Liberty Mutual argues that if the homeowners had sued Desert Mountain for damages, their claims would have been barred by limitations because the express warranties Desert Mountain issued to its customers expired in or about 1999. But Liberty Mutual's argument fails to address the six-year limitations period that applies to claims for breach of the implied warranty of workmanship and habitability in a new home. See Woodward, 141 Ariz, at 516, 687 P.2d at 1271. Moreover, although Liberty Mutual argues it was prejudiced because Desert Mountain did not require homeowners to sign releases of future claims in exchange for the repairs, on appeal it does not cite any subsequent demand for repair that would have been barred by such a release. Finally, as noted, Liberty Mutual conceded that the repairs Desert Mountain performed were necessary and reasonable, and Strickland, the Liberty Mutual claims specialist, testified an insured in Desert Mountain's position has a duty to mitigate its damages.

¶ 47 Accordingly, because there was evidence from which the jury could have found that Liberty Mutual suffered no prejudice from Desert Mountain's decision to undertake the repairs, we conclude the superior court properly denied Liberty Mutual's motion for judgment as a matter of law under the voluntary payments clause. See Roberson 202 Ariz, at 290, ¶ 14, 44 P.3d at 168 (judgment as a matter of law appropriate only "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense").

F. The "Known Loss" Provision.

¶ 48 Liberty Mutual next argues Desert Mountain's claims were barred by the policies`"known loss" provision because the developer knew of significant settlement-related problems before it purchased the policies.

¶ 49 The policies stated:

This insurance applies . . . only if: . . . [p]rior to the policy period, no insured . . . and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the . . ."property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the . . ."property damage" occurred, then any continuation, change or resumption of such . . ."property damage" during or after the policy period will be deemed to have been known prior to the policy period.

¶ 50 Liberty Mutual argues it offered evidence that Desert Mountain knew of soil-related problems from homeowner complaints and geotechnical reports received prior to the effective dates of the policies. It argues this knowledge triggered the known loss clause even if at the time the company did not know of the widespread nature of the problem. It bases this argument on the portion of the known loss provision applying to knowledge of property damage, "in whole or in part," that "continu[es], change[s], or resum[es]" during or after the policy period. (Emphasis added).

¶ 51 Our review of the record persuades us that sufficient evidence existed from which jurors could find that Desert Mountain lacked knowledge of the relevant property damage before the policies began. William Schoettker, Desert Mountain's vice president of development at the time, testified concerning homeowner complaints received prior to the initial policy period:

At that time, we didn't know this. We knew we had an issue. It was sent to the general contractor. It was sent to engineers. They reviewed it. They made recommendations. Those recommendations were executed. The customer service issue was then handled, the owners signed off on the issue. There was no reason to think we had a widespread settlement issue. . . . It all was resolved, and it was a thing of the past. No one even considered it any further once there was a resolution.

(Emphasis added). Liberty Mutual argues that two Desert Mountain employees who handled customer complaints learned of the settlement issues from homeowners prior to the first policy period. Those employees testified, however, that none of the complaints led them to believe there was a wide-scale problem with improper soil compaction. Both employees also told the jury that the problems they observed before the first policy commenced were minor issues typically seen in new home construction.

¶ 52 Liberty Mutual's own construction expert also agreed at trial that, based on his review of relevant records, after Desert Mountain resolved those initial homeowner complaints, "it was not until Mr. Frank came onboard and start[ed] doing his analysis that Desert Mountain had indication of further, and even ultimately wide scale compaction problems." Additionally, he agreed that Desert Mountain, "at least as far as every-body knew at the time, could reasonably conclude" that the settlement problems that caused homeowners to complain prior to the policy periods had been fully resolved.

¶ 53 Because there was sufficient evidence to support the jury's conclusion that Desert Mountain did not have knowledge of property damage caused by faulty soil compaction prior to the Liberty Mutual policies, the superior court did not err in denying Liberty Mutual's judgment as a matter of law on the issue of known loss. See Roberson, 202 Ariz. at 290, ¶ 14, 44 P.3d at 168.

G. Coverage of Damage that "Continued, Changed or Resumed."

¶ 54 The policies provided that property damage that "occurs during the policy period" and was not "known" prior to the policy period "includes any continuation, change or resumption of that . . . `property damage' after the end of the policy period."

¶ 55 The superior court instructed the jury that "[t]he Liberty Mutual policies provide insurance coverage for property damage that continued, changed or resumed beyond the end of the policy period, if that damage occurred during the policy periods." Liberty Mutual argues that given the policies' known loss provision, the court's instruction was misleading and confusing because it was contrary to the policy language precluding coverage for known losses that continue or change over time. We disagree.

¶ 56 The instruction mirrored the policy language. The record indicates that, because the parties disagreed about the meaning of the known loss provision, the superior court chose to allow both sides to argue their positions to the jury rather than instruct the jury on the meaning of the provision. Liberty Mutual's counsel argued to the jury that the property damage was excluded as a known loss under the policies, and the policies were admitted in evidence.

¶ 57 Under these circumstances, the instruction was neither misleading nor confusing. Nor on this record can we conclude Liberty Mutual suffered any prejudice based on the instruction. See Am. Pepper Supply Co., 208 Ariz, at 309, ¶ 7, 93 P.3d at 509 (reversal appropriate only when instruction is erroneous and appellant suffered prejudice).

H. Expenses Incurred in Suing the Contractor.

¶ 58 Liberty Mutual next argues the superior court erred by allowing the jury to award Desert Mountain the attorney's fees it incurred in its lawsuit against Weitz.

¶ 59 In the ordinary case, when an insured is sued on a covered claim, the insurer must defend the insured, i.e., hire attorneys to represent the insured in the lawsuit brought by the claimant. When a third party is at fault, the insurer may seek recovery from the third party based on principles of subrogation by filing a complaint in which the insurer stands in the shoes of its insured.

¶ 60 This case turned that usual set of circumstances on its head: As we have seen, Desert Mountain agreed to repair its customers' homes even though none of the homeowners had brought suit Desert Mountain then commenced its own lawsuit against Weitz, alleging the contractor was responsible for the soil-settlement problems that had damaged the homes. The superior court ruled in this case that Desert Mountain could recover the expenses of that lawsuit "upon proof of the necessity of the litigation with Weitz and the reasonableness of the litigation costs."

¶ 61 Generally speaking, when one party's breach of contract places the other in a situation that "makes it necessary to incur expense to protect his interest, such costs and expenses, including attorneys' fees, should be treated as the legal consequences of the original wrongful act and may be recovered as damages." Fairway Builders, Inc. v. Malouf Towers Rental Co., 124 Ariz. 242, 258, 603 P.2d 513, 529 (App. 1979) (quoting U.S. Fid. Guar. Co. v. Frohmiller, 71 Ariz. 377, 380, 227 P.2d 1007, 1009 (1951)). The expenses, however, are recoverable only if they are a foreseeable result of the breach. Id.

¶ 62 Desert Mountain's then-controller, Richard Yehling, testified that two days after tendering notice of its claim to Liberty Mutual, Desert Mountain sent a demand letter to Weitz threatening litigation if the contractor would not agree to pay for the repair work. On cross-examination, YehJing testified that Desert Mountain's decision to sue Weitz "had nothing to do with the status of its claim with Liberty Mutual." On appeal, Liberty Mutual argues that because Desert Mountain would have sued Weitz regardless of whether Liberty Mutual accepted coverage, as a matter of law, Desert Mountain could not prove the Weitz lawsuit was a necessary consequence of Liberty Mutual's refusal to accept coverage.

¶ 63 Contrary to Liberty Mutual's contention, the record contains sufficient evidence from which the jury could find Liberty Mutual's breach of contract made it necessary for Desert Mountain to sue Weitz. See Roberson, 202 Ariz, at 290, ¶ 14, 44 P.3d at 168. As described above, supra ¶ 4-5, Desert Mountain gave notice of its claim in May 2001, telling Liberty Mutual it faced considerable exposure and needed to mitigate its damages by performing immediate repairs. Liberty Mutual responded in late June that it could not accept coverage of the claim without more information and cautioned that it could not authorize Desert Mountain to make any repairs in the meantime.

¶ 64 Yehling testified that, in the absence of a coverage decision from Liberty Mutual, Desert Mountain filed suit against Weitz in October 2001 because it believed the statute of limitations on its claims against the contractor was about to expire. He added that after filing suit, Desert Mountain purposefully did not pursue the litigation aggressively while it waited to hear whether Liberty Mutual and the company's other insurers would agree to provide coverage. Additionally, Strickland, Liberty Mutual's claims specialist, testified that given the insurer's failure to initiate litigation against Weitz, it was reasonable under the circumstances for Desert Mountain to protect its interests by doing so.

¶ 65 "The insured exposed by his insurer to the sharp thrust of personal liability need not indulge in financial masochism." Helme, 153 Ariz, at 137, 735 P.2d at 459 (internal quotation omitted). Desert Mountain found itself in an untenable situation in early fall 2001. It had sold scores of homes with latent defects that had caused substantial damages, and it was concerned that the damage to the homes would worsen if repairs were delayed. It had tendered a claim to Liberty Mutual, but the insurer had not accepted coverage. Meanwhile, Desert Mountain believed that poor workmanship by Weitz, its contractor, had caused the damages. If Liberty Mutual accepted the claim, it would be able to sue to recover from Weitz, but in the meantime, Desert Mountain believed the damage claim against Weitz would be barred by limitations if suit were not commenced promptly. Given the uncertainty about whether Liberty Mutual would cover the claim, Desert Mountain might have found itself solely liable for the repair costs had it not filed suit against Weitz when it did. This evidence was sufficient to allow the jury to find that Liberty Mutual's failure to accept coverage made it necessary for Desert Mountain to file suit against Weitz.

Strickland testified that had Liberty Mutual agreed to reimburse Desert Mountain for the repairs while reserving its right to contest coverage, the insurer could have directed the litigation against Weitz as a subrogation claim. In that event, of course. Liberty Mutual would have directly incurred the attorney's fees and costs of that lawsuit.

¶ 66 Liberty Mutual contends, however, that because the projected repair costs ranged from $3 million to $10 million and its two policies together offered at most only $4 million in aggregate coverage, Desert Mountain would have ended up suing Weitz regardless of Liberty Mutual's coverage decision. But this argument ignores the fact that because Liberty Mutual failed to accept coverage, Desert Mountain had to file a complaint against Weitz to recover any reimbursement for the costs of repair. Furthermore, as described above, if Liberty Mutual had accepted the claim, it would have brought a subrogation claim against Weitz, and it, rather than Desert Mountain, would have incurred the attorney's fees and costs to prosecute that suit.

I. Coverage of Preventive Measures.

¶ 67 Liberty Mutual argues the court erred in instructing the jury concerning coverage of preventive measures and by failing to grant its motion for judgment as a matter of law and for new trial because the jury awarded damages for repairs that constituted preventive measures.

1. Jury instruction.

¶ 68 The jury instruction at issue stated, "The Liberty Mutual policies provide insurance coverage for the costs incurred to prevent possible future damage to non-defective property, if that damage probably would have occurred during the policy period if the preventative measures had not been performed." Liberty Mutual argues this instruction has no basis in the policies and, as a result, it is entitled to a new trial because it cannot be determined from the general verdict whether the jury would have reached the same result without the allegedly erroneous instruction.

¶ 69 In support of its position, Liberty Mutual cites several cases it contends hold that "damages" covered by a CGL policy may not include expenses incurred to prevent property damage. The cases it cites, however, are distinguishable because they involve situations in which the insured had not suffered any property damage before it took preventive measures or did not repair any damaged property, but paid only for preventive measures. See, e.g., Fireman's Fund Ins. Co. v. Hartford Fire Ins. Co., 73 F.3d 811, 815 (8th Cir. 1996) (cost of repairs to fire sprinkler supports not covered as "property damage" when repairs were undertaken to prevent flooding, but no flooding had occurred prior to the repairs); N.H. Ins. Co. v. Vieira, 930 F.2d 696, 701 (9th Cir. 1991) (when diminution in value of housing project did not constitute "property damage" under policy, cost of installing a fire detection system was preventive measure not covered by the policy); Hercules, Inc. v. AIU Ins. Co., 784 A.2d 481, 502 (Del. 2001) (costs incurred in government-ordered incineration of waste barrels not covered under policy when barrels had not yet caused harm but only "posed a threat to public health and welfare and the environment"); Boeing Co. v. Aetna, Cas. Sur. Co., 113 Wash.2d 869, 784 P.2d 507, 516 (1990) ("costs owing because of property damages are remedial measures taken after pollution has occurred, but preventive measures taken before pollution has occurred are not costs incurred because of property damage") (emphasis added).

¶ 70 Here, by contrast to the cases Liberty Mutual cites, Desert Mountain proved it had suffered property damage covered by the policy separate and apart from the expenses relating to the measures the insurer argues were preventive. Moreover, contrary to Liberty Mutual's argument, the instruction it challenges did not permit the jury to compensate Desert Mountain for any and all preventive measures; it limited recovery for such expenses to measures designed to prevent damages that "probably would have occurred during the policy period."

¶ 71 We agree with Desert, Mountain that Leebov v. United States Fidelity Guaranty Co., 401 Pa. 477, 165 A.2d 82 (1960), supports the instruction the court gave in this case. The insured in Leebov was a contractor that was excavating a hillside when a break occurred in the bank, causing a landslide. Id. at 83. The policy covered "sums which the Insured shall become obligated to pay . . . for damages because of . . . destruction of property." Id. The Pennsylvania court rejected the insurer's contention that the policy did not cover expenses the contractor incurred to prevent the landslide from continuing:

If the plaintiff had not taken immediate and substantial measures to remedy the perilous situation, disastrous consequences might have befallen the adjoining and nearby properties. If that had happened, the defendant would have been required to pay considerably more than is involved in the present lawsuit. It would be a strange kind of argument and an equivocal type of justice which would hold that the defendant would be compelled to pay out, let us say, the sum of $100,000 if the plaintiff had not prevented what would have been inevitable, and yet not be called upon to pay the smaller sum which the plaintiff actually expended to avoid a foreseeable disaster.

Id. at 84. Other cases are in agreement. See All] Ins. Co. v. Superior Court, 51 Cal.3d 807, 839, 274 Cal.Rptr. 820, 799 P.2d 1253 (1990) (expense of limiting spread of environmental contamination may be covered "damages"); cf. Am. Economy Ins. Co. v. Commons, 26 Or.App. 153, 552 P.2d 612, 613 (1976) (fire suppression costs recoverable under CGL policy).

¶ 72 We adopt the reasoning of the Leebov court under these circumstances and hold the instruction given in this case was correct. See A Tumbling-T Ranches, 222 Ariz, at 533, ¶ 50, 217 P.3d at 1238.

2. Evidence to support the verdict.

¶ 73 Separate from its attack on the jury instruction, Liberty Mutual argues Desert Mountain presented insufficient evidence that certain work it performed constituted repair of existing damage resulting from the soil settlement rather than prevention of future damage from soil settlement.

¶ 74 According to the record, Desert Mountain divided the work it did to stabilize the affected homes into three categories: "A grout," "B grout" and "C grout." "A grout" was the category of work performed to stabilize faulty soil compaction. "B grout" included the installation of soil nails, helical piers, steel rebar, ties and grout employed to repair and stabilize damaged retaining walls, stem walls and footings that had rotated, settled or moved due to faulty soil compaction. Finally, "C grout" work was performed to lock into place retaining walls, stem walls and footings that had been repaired with B grout.

¶ 75 As noted, the superior court ruled prior to trial, pursuant to Advance Roofing, 163 Ariz, at 482, 788 P.2d at 1233, that Desert Mountain could not recover the costs of repairing defective workmanship — i.e., the poorly compacted soil — but could recover the costs of repairing property damaged by the defective work. Under that rule, Desert Mountain could not recover the expense of installing "A grout" because "A grout" was used to repair faulty soil compaction. On appeal, Liberty Mutual argues the court erred by permitting the jury to award damages for "B" and "C" grout because that work also was directed at preventing future damage, not repairing existing damage.

¶ 76 In support of its position, Liberty Mutual points to testimony by Frank that the purpose of "B" grouting was to prevent further movement of walls and footings, not to repair any existing property damage. Frank also testified that "C" grouting "[w]as intended to prevent future damage." As Desert Mountain points out, however, Frank further testified that some of the "B" and "C" grout work lifted the affected structural components back into their correct positions, thereby repairing the components rather than (or in addition to) stabilizing them so they would incur no additional damage. And Liberty Mutual's expert witness agreed at trial that when "B" and "C" work lifted structures that had settled, that work could be classed as repair of resulting damage rather than a preventive measure. Liberty Mutual also acknowledges that in spite of his testimony related above, Frank also testified that the purpose of "B" and "C" grouting was to "stabilize poorly compacted fill property damage."

¶ 177 The peculiar nature of the repairs Desert Mountain performed makes it difficult to apply the strict rule that Liberty Mutual asserts should bar coverage of any measures that might have prevented additional damage resulting from the inadequately compacted soil. In many instances, rather than, for example, replace a wall that was sinking or listing due to settlement, Desert Mountain simply secured the wall in place, preventing further movement. Thus, Desert Mountain did not aim to return the wall to its original position (prior to the soil settlement); instead, its goal was to ensure that the wall would not move farther out of place. Under these circumstances, we are reluctant to hold that the jury erred by concluding that these measures constituted repairs of existing property damage rather than measures designed to prevent damage that might occur after the policies terminated.

¶ 78 Moreover, Liberty Mutual does not specify any amount the jury awarded for performing "preventive" repairs it contends were not covered by the policies. The jury issued a lump-sum verdict and was not asked to specify the amount of damages it awarded for any particular component of the expenses Desert Mountain sought. Because the jury awarded Desert Mountain only about a third of the total amount of damages it sought, we cannot conclude that it awarded any damages based on purported repair work not covered by the policies. See A Tumbling-T Ranches, 222 Ariz, at 543, ¶ 98, 217 P.3d at 1248 (appellate court "will uphold a general verdict if evidence on any one count, issue, or theory is sufficient to sustain the verdict").

Liberty Mutual does not argue the superior court denied it the right to have the jury enter separate (special) verdicts on the various components of Desert Mountain's damage claim. The insurer therefore may not argue it was prejudiced because the jury issued only a general verdict. See Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 341-42, 666 P.2d 83, 86-87 (App. 1983) ("request for special verdicts would have been the proper method of assuring that the award of damages was not partly based on a count which had been erroneously submitted to the jury").

J. Attorney's Fees Awarded by the Court.

¶ 79 At the trial's conclusion, the superior court awarded Desert Mountain its attorney's fees and costs pursuant to A.R.S. §§ 12-341 (2003) and -341.01(A) (2003). Liberty Mutual contends the court abused its discretion by finding Desert Mountain was the successful party in the litigation. It argues that in light of pretrial rulings that limited the damages Desert Mountain could recover and the court's entry of summary judgment dismissing the claim for breach of the duty of good faith, and because the jury ultimately awarded Desert Mountain only about a third of what it sought at the conclusion of the trial, Liberty Mutual should be considered the successful party, or in the alternative, there was no successful party for purposes of § 12-341.01(A).

Both parties sought their attorney's fees after the trial. Liberty Mutual asked for $803,776; Desert Mountain asked for $877,013. The court denied Liberty Mutual's request and entered an award of $725,000 in favor of Desert Mountain. On appeal, Liberty Mutual does not contest the reasonableness of the amount of fees the court awarded Desert Mountain.

¶ 80 The superior court has broad discretion in deciding whether to award attorney's fees under A.R.S. § 12-341.01(A). Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985). On review, we decide not "whether the judges of this court would have made an original like ruling, but whether a judicial mind, in view of the law and circumstances, could have made the ruling without exceeding the bounds of reason. We cannot substitute our discretion for that of the trial judge." Id. at 571, 694 P.2d at 1185 (quoting Davis v. Davis, 78 Ariz. 174, 179, 277 P.2d 261, 265 (1954) (Windes, J., specially concurring)). Thus, we will affirm the superior court's award of fees if it is supported by "any reasonable basis." Maleki v. Desert Palms Profl Props., L.L.C., 222 Ariz. 327, 334, ¶ 32, 214 P.3d 415, 422 (App. 2009) (citation omitted).

¶ 81 "The decision as to who is the successful party for purposes of awarding attorneys' fees is within the sole discretion of the trial court, and will not be disturbed on appeal if any reasonable basis exists for it." Id., ¶ 35 (quoting Sanborn v. Brooker Wake Prop. Mgmt, Inc., 178 Ariz. 425, 430, 874 P.2d 982, 987 (App. 1994)). The successful party is the one that is the "ultimate prevailing party" in the litigation. U.S. Insulation, Inc. v. Hiiro Const r. Co., 146 Ariz. 250, 259, 705 P.2d 490, 499 (App. 1985). A party can be the successful party even if it "does not recover the full measure of relief it requests." Sanborn, 178 Ariz, at 430, 874 P.2d at 987.

¶ 82 Desert Mountain initially sought approximately $7.3 million in damages from Liberty Mutual. The superior court, however, held Desert Mountain could not recover from Liberty Mutual any amounts the developer had received in settlements with contractors and its other insurers. Liberty Mutual filed a host of motions for partial summary judgment prior to trial. As noted, the court dismissed the bad faith claim; it made other rulings that narrowed the scope of contract damages available to Desert Mountain, but it also denied some of Liberty Mutual's motions and entered orders approving Desert Mountain's interpretation of certain key policy terms. At the end of the day, as we have said, Desert Mountain asked the jury to award it $1,500,000 in damages; the jury's verdict was for $500,000.

¶ 83 In addition, the record shows intermittent unsuccessful settlement offers by both sides. The complaint was filed in May 2003; Desert Mountain made an offer of judgment of $1.5 million in February 2004. For its part, Liberty Mutual served a $75,000 offer of judgment in August 2005. The record does not disclose that Liberty Mutual ever offered more than $75,000 in settlement.

¶ 84 Liberty Mutual argues the determination of the "successful" party for purposes of a fee award under A.R.S. § 12-341.0KA) depends on "the totality of the litigation." See Schwartz v. Farmers Ins. Co. of Ariz., 166 Ariz. 33, 38, 800 P.2d 20, 25 (App. 1990) ("The trial court may rightfully utilize a `percentage of success factor' or a `totality of the litigation' test . . . to determine who was the successful party."). At issue in Schwartz was a claim for the value of a car that was destroyed in a collision. The insurance company offered $11,000; the insured demanded $14,000 and the jury awarded $12,000 but found for the insurer on the insured's claim for bad faith. Id. at 34-55, 800 P.2d at 21-22. This court affirmed the superior court's decision that the insurer "was the successful party under the totality of the litigation." Id. at 38-39, 800 P.2d at 25-26.

¶ 85 Schwartz does not compel us to reverse the superior court's exercise of discretion in this case. While Liberty Mutual succeeded in obtaining a pretrial ruling that it was not liable for bad-faith damages, we do not think that or the superior court's (correct) order setting off Desert Mountain's prior settlements necessarily dictated the result of the "successful party" analysis under A.R.S. § 12-341.01(A). To be sure, Desert Mountain's case was reduced considerably when the court ruled it could not recover from Liberty Mutual any amounts it already had received in settlements with other parties, but the effect of that ruling was a fortuity from the perspective of Liberty Mutual because it had nothing to do with the merits of the insurer's substantive defenses to coverage. Under the circumstances, including Liberty Mutual's failure to make a significant settlement offer, we cannot conclude the superior court abused its discretion in finding Desert Mountain was entitled to its attorney's fees and costs as the successful party in the litigation pursuant to A.R.S. § 12-341.01(A).

II. Desert Mountain's Cross-Appeal.

¶ 86 Desert Mountain argues the superior court erred by entering partial summary judgment in favor of Liberty Mutual on certain elements of Desert Mountain's claims and in precluding Desert Mountain from recovering internal costs it contends it incurred as a result of Liberty Mutual's breach.

A. Motions for Summary Judgment.

1. Standard of review.

¶ 87 We review the grant of summary judgment de novo, viewing the evidence and reasonable inferences in favor of the non-moving party. Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 482, ¶ 13, 38 P.3d 12, 20 (2002). Summary judgment is appropriate "if the pleadings, deposition, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P. 56(c)(1).

2. Damages caused by repair of defectively compacted soil: "Get-to" damages.

¶ 88 This court held in Advance Roofing that faulty workmanship does not constitute an "occurrence" within the meaning of the standard CGL insurance policy. 163 Ariz, at 482, 788 P.2d at 1233. Nevertheless, although costs incurred to repair a construction defect normally are not covered, damage to other property caused by or resulting from the defect may be covered. See Lennar Corp., 214 Ariz, at 262, ¶ 20, 151 P.3d at 545. Consistent with those rules, the superior court in this case held in a pretrial order that "repair of the defective workmanship [i.e., faultily compacted soil] is not covered by the Liberty Mutual policies."

¶ 89 Desert Mountain argues the superior court erred, however, by ruling on summary judgment that it could not recover some $136,000 in expenses incurred in repairing damage to non-defective property that occurred during the repair of defective property. To explain, the record shows that to repair some of the poorly compacted soil, Desert Mountain had to damage or destroy walls, floors, slabs or other portions of the homes that had not been affected by the poorly compacted soil. (For example, Desert Mountain sometimes had to drill through perfectly fine floors to gain access to the soil that needed to be remediated.) The court's ruling precluded Desert Mountain from recovering the expenses of repairing damage (the parties called them "get-to" damages) that occurred in the process of remedying defective soil compaction.

¶ 90 Desert Mountain argues the removal or destruction of non-defective property required to repair poorly compacted soil was covered under the policies because it constituted property damage caused by the defective work. In support, it cites Dewitt Construction, Inc. v. Charter Oak Fire Insurance Co., 307 F.3d 1127 (9th Cir. 2002). Applying Washington law, the court in that case held that when a subcontractor had to remove and destroy undamaged and non-defective work of other subcontractors to remedy its own defective construction, the damage was covered by the insured subcontractor's CGL policy. Id. at 1134.

¶ 91 In our view, however, the expense of removing or repairing non-defective property under the circumstances presented here more properly is characterized as a cost of repairing the defect. The removal or destruction of non-defective property required to repair poorly compacted soil is not damage caused by the poorly compacted soil. Rather, it is damage caused by the repair of the poorly compacted soil. Therefore, because the cost of repairing the defect is not recoverable under a CGL policy in Arizona, Advance Roofing, 163 Ariz, at 482, 788 P.2d at 1233, the superior court did not err by ruling that costs incurred in "getting to" the defect were not covered under the policies at issue.

That Desert Mountain had to destroy or damage slabs or walls that were not damaged by soil settlement in order to "get to" the subsurface to repair the soil is unfortunate but not determinative of the coverage issue. If the only way repair crews could access a certain area of poorly compacted soil was to rent a special piece of expensive equipment that could drill laterally through dozens and dozens of feet of earth to reach the affected location, the rental of the special drill would not be covered because it would be just one of many expense items incurred in repairing the defective soil. That repair crews in this case were required on occasion to drill through a floor to get to the soil should not change the outcome.

¶ 192 Authorities from other jurisdictions support this conclusion. See OneBeacon Ins. Co. v. Metro Ready-Mix, Inc. 427 F.Supp.2d 574, 576-77 (D.Md. 2006) (demolition and reconstruction of pilings and columns necessitated by repair of defective grout work not covered as an "occurrence" under CGL policy); Nan Sur. Group v. Precision Wood Prods., Inc., 271 F.Supp.2d 776, 783 (M.D.N.C. 2003) ("costs incurred . . . to repair drywall, repaint walls and reinstall sinks, wiring and plumbing incident to the replacement of . . . defective workmanship" were not an "occurrence" under CGL policy because they were foreseeable costs associated with the repair of faulty workmanship); H.E. Davis Sons v. North Pac. Ins. Co., 248 F.Supp.2d 1079, 1085 (D.Utah 2002) (costs incurred in removing undamaged concrete footings in order to remedy defectively compacted soil not covered as "property damage" under CGL policy); Woodfin Equities Corp. v. Harford Mut. Ins. Co., 110 Md.App. 616, 678 A2d 116, 131-32 n. 8 (1996) ("Voluntarily pulling up carpeting or breaking through dry-wall to access the [defective] HVAC units is not [covered as] property damage [under CGL policy]; it is the cost incurred in replacing and repairing the HVAC systems."), aff'd, in part and, rev'd, in part on other grounds Harford Mut. Ins. Co. v. Woodfin Equities Corp., 344 Md. 399, 687 A.2d 652 (1997); Gen. Accident Ins. Co. of Am. v. Am. Nat'l, Fireproofing, Inc., 716 A.2d 751, 758-59 (R.I. 1998).

3. Breach of the duty of good faith.

¶ 93 Desert Mountain also argues the superior court erred by granting Liberty Mutual's motion for partial summary judgment on the bad faith claim. Desert Mountain contends questions of fact existed as to whether the insurer acted in bad faith and points to evidence that Liberty Mutual denied coverage without interviewing any Desert Mountain employee, retaining an expert to examine the claims or visiting the site.

¶ 94 An insured alleging breach of the duty of good faith must show both that the insurer acted unreasonably in investigating, evaluating or processing the claim and that it either knew or was conscious of the fact that it acted unreasonably. Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, ¶ 22, 995 P.2d 276, 280 (2000). An insurer's failure to pay a claim is not unreasonable when the claim's validity is "fairly debatable." Raidings v. Apodaca, 151 Ariz. 149, 156, 726 P.2d 565, 572 (1986). Similarly, an insurer's reasonable but incorrect policy interpretation does not, by itself, constitute bad faith. Aetna Cas. Sur. Co. v. Superior Court, 161 Ariz. 437, 440, 778 P.2d 1333, 1336 (App. 1989). Finally, our review of the superior court's decision is limited to the record before the court when it considered the motion for summary judgment. Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55, ¶ 8, 156 P.3d 1157, 1160 (App. 2007); GM Dev. Corp. v. Cmty. Am. Mortgage Corp., 165 Ariz. 1, 4, 795 P.2d 827, 830 (App. 1990).

¶ 95 We conclude that on the record before the superior court at the time of the summary judgment briefing, there existed no genuine issue of material fact as to whether Liberty Mutual acted unreasonably, or if it did, that it knew or was conscious that it had acted unreasonably. For the most part, Desert Mountain's response to Liberty Mutual's motion for partial summary judgment on the bad faith claim argued that Liberty Mutual's decision to deny coverage was not well-founded. In its letter denying coverage, dated February 12, 2003, Liberty Mutual cited the voluntary payments and known loss exclusions as bars to coverage. As we have held, neither of those exclusions barred coverage of Desert Mountain's damages. In its response to the motion for summary judgment, however, Desert Mountain failed to offer evidence that Liberty Mutual's policy positions were unreasonable or not fairly debatable. And an insurer does not commit bad faith simply by asserting a policy defense that turns out to be invalid or unfounded. See Rawlings, 151 Ariz, at 156, 726 P.2d at 572; Aetna Cos. Sur. Co., 161 Ariz, at 440, 778 P.2d at 1336.

Desert Mountain supports its cross-appeal with dozens of citations to trial evidence that it contends proves Liberty Mutual engaged in bad faith by denying the claim. Our review on appeal from the court's grant of summary judgment, however, is confined to the evidence available to the court at the time it ruled on the motion. We do not consider evidence that Desert Mountain failed to submit in response to the motion for summary judgment but offered at trial years later.

¶ 96 Desert Mountain argues, however, that Liberty Mutual engaged in bad faith by delaying its response to the demand for coverage and by issuing its denial letter without properly investigating the claim. It was undisputed, however, that in June 2001, in response to the May 16, 2001 notice of claim, Liberty Mutual asked Desert Mountain to furnish it nine categories of documents relating to the claim. Desert Mountain correctly does not argue on appeal that Liberty Mutual's request for documentation was unreasonable. The insurer asked, for example, for documents concerning homeowner complaints, the contracts between Desert Mountain and Weitz, any other insurance policies on the project, repair work already done and payments already made, Frank's reports, the proposed repair schedule and any notices of claim given to Weitz or to other subcontractors. Desert Mountain did not furnish the insurer with documents regarding homeowner complaints (which Yehling admitted Strickland told him were "important") or documentation of completed repairs until October 2002. Liberty Mutual notified Desert Mountain of its coverage decision on February 12, 2003, four months after Desert Mountain finally delivered the last of the documents.

Desert Mountain did not dispute its failure to provide all requested documents until October 2002, but asserted that it provided the documents as they "became available."

¶ 97 We conclude the limited evidence Desert Mountain offered in response to Liberty Mutual's motion for summary judgment created no genuine issue of fact with respect to the claim for breach of duty of good faith and fair dealing. See Zilisch, 196 Ariz, at 238, ¶ 22, 995 P.2d at 280 (bad faith requires proof of unreasonable acts plus insurer's knowledge or consciousness of unreasonableness). The facts Desert Mountain offered showed only a lag in time between Desert Mountain's notice of claim and Liberty Mutual's coverage decision, although it was undisputed that the insurer's final decision came only four months after Desert Mountain fully complied with the insurer's request for information regarding the claim. As a result, we affirm the court's grant of summary judgment. See id; see also Lasma Corp. v. Monarch Ins. Co. of Ohio, 159 Ariz. 59, 63-64, 764 P.2d 1118, 1122-23 (1988) (bad faith claim should not go to jury when evidence showed claim was "fairly debatable"); Voland v. Farmers Ins. Co. of Ariz., 189 Ariz. 448, 453-54, 943 P.2d 808, 813-14 (App. 1997).

B. "Markup" Damages.

¶ 98 Before trial, Desert Mountain sought as damages a 10 percent "markup" on the overall repair expenses it incurred to compensate it for the time its employees devoted to the repair efforts and the lawsuit against Weitz. The superior court, however, granted Liberty Mutual's motion in limine to preclude the markup. On appeal, Desert Mountain argues the court erred because the markup fairly represented costs Desert Mountain incurred as a direct result of Liberty Mutual's breach of contract.

¶ 99 Although we ordinarily review the superior court's admission or exclusion of evidence under a clear abuse of discretion standard, we review questions of alleged legal error, including those related to evidentiary rulings, de novo. Yauch v. S. Pac. Transp. Co., 198 Ariz. 394, 399, ¶ 10, 10 P.3d 1181, 1186 (App. 2000).

¶ 100 Desert Mountain's first argument in support of its entitlement to the markup rests on the policies`"Supplementary Payments" provision, which stated, "[Liberty Mutual] will pay, with respect to any claim we investigate or settle, or any `suit' against an insured we defend . . . [a]ll reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or `suit' . . . "Desert Mountain asserts that because Liberty Mutual breached its contractual duties to investigate the claim, acknowledge coverage and prosecute a subrogation claim against Weitz, Desert Mountain was forced to divert its own resources to such tasks and should be entitled to recover the 10 percent markup to compensate it for doing so.

¶ 101 We conclude the "Supplementary Payments" provision does not support Desert Mountain's position. The policy language only obligates the insurer to pay expenses the insured incurs at its request. Because Desert Mountain does not contend Liberty Mutual made any such requests, the "Supplementary Payments" provision is inapplicable.

¶ 102 Desert Mountain also argues the markup fairly represented the internal expenses it incurred as a foreseeable consequence of Liberty Mutual's breach of contract. It contends, for example, that if Liberty Mutual had accepted coverage of the claim, Desert Mountain employees would not have had to manage the repair program or oversee the prosecution of the construction defect lawsuit against Weitz. But in contrast to the verifiable repair expenses and attorney's fees and out-of-pocket costs it offered in evidence, the markup Desert Mountain sought did not represent the actual cost of the time its employees devoted to managing the repairs and overseeing the litigation. In the absence of evidence of the actual value of the time its employees actually spent on those tasks, the jury could not have awarded damages on this element of Desert Mountain's claim.

¶ 103 Desert Mountain also argues it is entitled to the markup as compensation for the disruption that Liberty Mutual's breach caused to its business. It cites Reliable Electricity Co. v. Clinton Campbell Contractor, Inc., 10 Ariz.App. 371, 375-77, 459 P.2d 98, 102-04 (1969), for the proposition that an implied overhead factor is recoverable in a claim for breach of contract. At issue in that case, however, were damages representing manufacturing inefficiencies caused by damage to a brick kiln. Id. at 373, 459 P.2d at 100. We will not apply a manufacturing overhead cost factor under these circumstances. Moreover, Desert Mountain offered no evidence to support its contention that the 10 percent markup it sought actually represented the cost of the business disruption it contended it incurred as a result of Liberty Mutual's breach.

Desert Mountain did not present evidence of lost profits in support of this claim; instead, it argued in general fashion, for example, that because some of its employees were busy with matters concerning the construction defects, they could not devote their full attention to their jobs. Its argument does not acknowledge the possibility that attending to construction defects was within the job descriptions of the affected employees.

¶ 104 An insurer's wrongful failure to indemnify or defend its insured "does not expose the insurance carrier to greater liability than that contractually provided in the policy." State Farm Mut. Auto. Ins. Co. v. Paynter, 122 Ariz. 198, 204, 593 P.2d 948, 954 (App. 1979). Desert Mountain failed to show that but for Liberty Mutual's breach it would not have incurred the internal costs it sought to recover by way of the markup. As a result, the superior court did not err in granting Liberty Mutual's motion in limine on so-called overhead damages.

CONCLUSION

¶ 105 We affirm the superior court's rulings and the judgment it entered on the jury's verdict. In our discretion we decline to award either side its attorney's fees or costs on appeal.

CONCURRING: PATRICIA A. OROZCO, Presiding Judge and JON W. THOMPSON, Judge.