Tred Eyerly | Insurance Law Hawaii | February 8, 2016
The New Mexico Court of Appeals presented a cogent analysis of claims for construction defects and the application of the “your work” exclusion under a CGL policy in Pulte Homes of New Mexico, Inc. v. Indiana Lumbermens Ins. Co., 2015 N.M. App. LEXIS 134 (N. M. Ct. App. Dec. 17, 2015).
Pulte built 107 homes. Pulte contracted with ‘Western Building Supply (WBS) to provide windows and sliding glass doors for the homes. Pulte was named as an additional insured under WBS’s policy with Lumbermens (ILM).
In 2007, a large group of homeowners sued Pulte, alleging numerous construction defects in their homes. Among the defects were windows that leaked and sliding glass doors that stuck and did not close completely. Many of the homeowners arbitrated their claims against Pulte. In May 2009, Pulte tendered its first demand for a defense to ILM. The arbitration award against Pulte found that windows and doors did not operate properly and had been replaced by Pulte.
ILM denied the tender. Pulte filed a third-party complaint against ILM.
In March 2012, Pulte tendered to ILM the fifth amended complaint filed by the homeowners which included allegations that there were cracks in the stucco above the sliding glass doors and windows. ILM continued to deny that it had a duty to defend Pulte.
ILM moved for summary judgment and the trial court granted the motion. Pulte appealed.
The appellate court first concluded that the facts presented in the May 2009 tender constituted allegations of physical injury to tangle property under the policy. Physical injury to the windows and sliding glass doors arguably occurred because the arbitration award referred to their “deterioration” and stated that they needed to be “replaced” as opposed to merely re-installed.
Nevertheless, ILM argued there was no occurrence because the homeowners’ claims involved defective windows and doors and/or defective installation of the windows and doors. Therefore, no accident occurred because faulty workmanship did not involve the fortuity required to constitute an accident. The court disagreed. Because the definition of “occurrence” did not expressly state that faulty workmanship can never constitute an accident and did not limit the term’s effect to a particular class of tangible property, the alleged property damage was caused by an alleged “occurrence.”
Nevertheless, ILM asserted that even if the May 2009 tender described an occurrence, the “your work” exclusion applied because the only property damage alleged in the May 2009 tender was WBS’s work itself – the windows and sliding glass doors – and not to other property. The court agreed. The policy’s terms “you” and “your” applied only…