Tred R. Eyerly | Insurance Law Hawaii | November 16, 2016
Interpreting Florida law, the United States District Court found there was no duty to defend a contractor against construction defect claims. Evanston Ins. Co. v. Dimmucci Dev. Corp. of Ponce Inlet, Inc., 2016 U.S. Dist. LEXIS 123678 (M.D. Fla. Sept 13, 2016).
The insured built condominiums and townhomes. It held three successive CGL policies issued by Evanston. The “your work” exclusion in the policies barred coverage as follows:
“Property Damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
The insured constructed the Towers Grande Condominium. In 2012 the Towers Grande Condominium Association, Inc. initiated the underlying action alleging that the insured’s failure to construct the Towers Grande properly resulted in building defects and deficiencies. Damage to the roof, generator exhaust pipe, and HVAC system was alleged. Further, water intrusion and decking/structural issues were claimed. In addition to the construction defects, the Association also alleged that the insured’s faulty work led to additional damages.
Evanston filed a declaratory judgment action. The parties filed cross motions for summary judgment on coverage issues.
The court initially determined that the underlying complaint alleged an occurrence under the policies. The insured did not expect nor intend the resulting structural damages caused by water intrusion and improper ground floor decking.
The complaint also sufficiently alleged “property damage.” The complaint alleged damages for more than the cost of repairing or replacing the insured’s defective work. For example, the complaint alleged “failure of waterproofing, sloping and/or joint issues with sealant allowing water into units and structural damage to decking and rebar below.” Such allegations did not solely encompass the insured’s defective work but also described other property damaged, such as damage caused by the insured’s faulty work in applying waterproofing and sealant. Because the underlying complaint alleged property damage to nondefective portions of the project caused by the insured’s defective work, and were not limited to repair or replacement of such work, the allegations sufficiently established an “occurrence” that caused “property damage,” thus triggering a duty to defend.
However, the allegations also brought the alleged property damage within the “your work” exclusion, ultimately extinguishing the insurer’s duty to defend. If the complaint alleged damage only to the insured’s work, the “your work” exclusion barred coverage. The complaint alleged that the insured’s defective work on a portion of the Towers Grande caused property damage to other portions of the building also constructed by the insured.
Interestingly, the court’s reasoning departed from that of the New Jersey Supreme Court and other jurisdictions. In Cypress Point Condominium Assoc. Inc. v. Adria Towers, 226 N.J. 403 (N.J. 2016) [post here], the New Jersey Supreme Court recognized the subcontractor’s exception to the exclusion and held that because the water damage to the completed portions of the project were alleged to have arisen out of faulty workmanship performed by subcontractors, it was a covered loss.