Liberty Insurance Underwriters, Inc. v. The Weitz Company, LLC – 3/27/2007

April 7, 2007

Arizona Court of Appeal Division One Holds That Builder’s Risk Insurance Policy Constitutes Inland Marine Insurance and Is Thus Exempt from Arizona Standard Fire Policy Requirements.

A fire destroyed a student dormitory under construction in Phoenix. An insurance company (“Insurer”) filed a declaratory judgment action seeking a declaration that its policy did not cover the damage because the insured (“Insured”) had failed to abide by terms of three warranty endorsements that required specified fire-prevention measures at the job site. Insured counterclaimed for an order that the policy covered the damage, and argued that the warranty endorsements were unenforceable because contrary to the terms of the Arizona Standard Fire Policy mandated by A.R.S. § 20-1503(A). The superior court ruled in favor of Insured’s motion for summary judgment. Insurer appealed, contending that the builder’s risk policy at issue was an “inland marine” insurance policy, and thus, under A.R.S. § 20-1501, exempt from the requirements of the Arizona Standard Fire Policy.

The Arizona Court of Appeals overturned the summary judgment. The Court concluded as a matter of law, based on the language of the policy and the definitions of “marine insurance” at A.R.S. § 20-255 and A.A.C. R20-6-602, that the policy constituted inland marine insurance within the meaning of Arizona law. The policy therefore was exempt from the requirements of the Arizona Standard Fire Policy, and the warranty endorsements that Insured was alleged to have breached were not void. The Court declined to segregate for distinct treatment the fire coverage portion of the policy because to do so would render meaningless the exemption at A.R.S. § 20-1501 of inland marine coverages (including fire) from the requirements of the Arizona Standard Fire Policy. The Court remanded to the superior court for further proceedings.

Judge Johnsen wrote the opinion; Judges Timmer and Norris concurred.