Greystone Construction v. National Fire & Marine
In the latest missive in the battle to define the scope of the duty to defend and the duty to indemnify a construction professional in the construction defect context, the United States District Court ruled on March 31, 2013 in favor of the construction professional. The facts of the case are outlined below.
National Fire issued a commercial general liability insurance policy to two builders. Those builders were sued for construction defects. The builders tendered to National Fire and National Fire denied the tenders on various grounds. In both cases, the builders were defended by another insurer who issued an earlier policy.
Both the insurer and the insureds sought summary judgment on the duty to defend the builders. National Fire asserted various coverage defenses and positions, all of which the District Court rejected. Those arguments are outlined below.
On the issue of the duty to defend:
- First, National Fire urged the District Court to look beyond the four corners of the Complaint to determine if the duty to defend had been triggered. The District Court declined to do so.
- National Fire asserted that an endorsement precluding coverage for damage arising out of work done by subcontractors applied. On its face, the endorsement applied unless four specific criteria were met. The District Court said that the four corners of the Complaint did not establish that those four criteria were not met and therefore National Fire had failed to conclusively establish that the endorsement precluded coverage.
- National Fire also asserted that an endorsement precluding coverage for damage which first manifests itself before the start of the policy period applied to preclude coverage. Again, the District Court said that the four corners of the Complaint did not affirmatively establish that the exclusion applied.
- National Fire also relied upon an "other insurance" clause to deny the duty to defend. National Fire argued that its policy was excess over any other primary coverage. The District Court rejected this argument saying that National Fire's policies only covered losses that occurred during its policy period and there was no other primary coverage for National Fire's policy year.
- National Fire also relied upon an endorsement that eliminates the obligation to defend when the insured requests a defense under an earlier issued insurance policy. The District Court held that this provision is unenforceable in Colorado as a matter of public policy.
- Similarly, National Fire relied upon an endorsement that requires the insured to elect an insurance company to provide a defense and if the insured requests another insurance company to provide a defense, National Fire has the option, but not the duty, to defend. Again, the District Court found that this provision is unenforceable in Colorado on public policy grounds.
On the issue of indemnification, National Fire argued that it had no obligation to pay for any portion of the builders' settlements on the following grounds:
- Again, National Fire asserted that an endorsement precluding coverage for damage arising out of work done by subcontractors applied. The District Court said that National Fire had not established that all of the alleged damages arose out of work done by subcontractors (as opposed to site selection, for example.).
- Next, National Fire asserted its subsidence exclusion precluded indemnification. Even though the subsidence exclusion precluded coverage for damages "arising out of, resulting from, caused, aggravated or contributed to, directly or indirectly by the subsidence," and the parties both conceded that a "majority" of the damage was the result of soils movement, the District Court ruled that the exclusion would not apply unless National Fire established that all of the alleged damage was caused by soils movement.
- Third, National Fire argued that its EIFS exclusion precluded indemnification. The District Court ruled that National Fire had not provided any evidence to support its position on this exclusion.
- Finally, National Fire argued that the alleged damage began before the inception of its policy as evidenced by the date of the homeowners' notice to the builders of the alleged defects. The District Court found that National Fire had not established that the damage observed later was the same damage that was observed when the original notice was sent.
In the ever-swinging pendulum between carriers and construction professionals in Colorado, this case is notable because the District Court appeared to go out of its way to reject the carrier's arguments. We will continue to keep you informed of which way the wind is blowing on this important issue.