The United States District Court for Oklahoma recently ruled that homeowners’ liability policies (primary and excess) did not cover a homebuyer’s lawsuit against the insured sellers for misrepresenting the condition of the home’s fireplaces. Boggs v. Great Northern Ins. Co., No. 08-CV-0660-CVE-PJC (D. Okla. Sept. 11, 2009). A copy of the decision can be found here.

The buyers sued the insured for fraud, negligent misrepresentation, negligence, and statutory violations, alleging that the insureds had falsely stated in the sale that the fireplaces were in “good working order,” when in fact they were in violation of building codes. The buyers sought reimbursement for the cost of repairing and replacing the fireplace. The sellers’ insurance policies covered damages the insured is “legally obligated to pay” for “property damage” “caused by an occurrence.”

The court held that the buyers’ lawsuit did not allege “property damage” and was not “caused by an occurrence.” The court found no “property damage” because the underlying claims were “for the costs associated with repairing the fireplaces, which are economic damages.” The court cited the “basic assumption that general liability policies do not cover damages for breach of contract,” and noted that the underlying claims, “[t]hough labeled with tort language, … all stem from the breach of the contract and from alleged misrepresentations in the property disclosure certificate.” The court found that the insureds did not damage the house, but rather allegedly lied about a house already damaged, thereby inducing the buyers to contract to pay more than the house was worth.

The court similarly found that the underlying complaints did not allege property damage “caused by an occurrence.” The court stated, “[e]ven assuming that the Boggses’ [sic] alleged negligent misrepresentations are occurrences, they did not cause the property damage asserted in the Underlying Claims.” Furthermore, the “alleged breach of the real estate contract … did not cause any property damage.”

The court also found that coverage was excluded under the “owned property” exclusion, because the insureds owned the property at the time the fireplaces were “damaged,” and therefore, the insurers had no duty to indemnify or defend.