Tred R. Eyerly | Insurance Law Hawaii
Although the appellate court agreed there was property damage caused by an occurrence, the “your work” exclusion barred the insured contractor’s claim. King’s Cove Marina, LLC v. Lambert Commercial Construction. LLC, 2019 Minn. App. LEXIS 389 (Minn. Ct. App. Dec. 16, 2019).
King’s Cover Marina sought to expand and remodel its main building. The marina hired Lambert to perform the remodeling project. Lambert hired Roehl Construction, Inc. as a subcontractor to install new concrete footings on the main level of the building and to provide concrete for the second-level mezzanine floor.
After completion, the marina sued Lambert for breach of contract and negligence. The marina alleged that the concrete floors on the first and second levels were not constructed in accordance with industry standards or with project plans and specifications, resulting in excessive movement and cracking of the new concrete floors. Lambert tendered its defense to its insurer, United Fire & Casualty Company. United Fire defended under a reservation of rights and later sued Lambert for declaratory judgment.
While the declaratory judgment action was pending, Lambert and the marina settled the underlying lawsuit. Lambert confessed judgment in the marina’s favor in the amount of $2 million. Judgment was entered against Lambert. The marina filed a supplemental complaint for garnishment against Untied Fire. United Fire answered, asserting that the settlement was unreasonable because it failed to allocate between covered and non-covered damages. The trial court determined on summary judgment there was coverage for the claims and damages asserted by the marina against Lambert. United Fire appealed.
The appellate court agreed with the trial court’s determination that there was property damage caused by an occurrence. However, Exclusion (l) applied to bar coverage. The provision excluded coverage for:
“Property damage” to “your work” arising out off 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 products-completed operations hazard included “all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work.””
Here, any costs associated with repairing or replacing Lambert’s faulty work were barred by Exclusion l. The marina’s claimed damages arose at least in part out of Lambert’s work and any damages associated with repairing such work were excluded from coverage by Exclusion l.
The exception for subcontractors under Exclusion l was not applicable because the settlement agreement between the marina and Lambert was limited to roofing and siding performed by Lambert and excluded the concrete work performed by Roehl. Thus, the subcontractor exception to Exclusion l did not apply to the claims at issue in the settlement agreement.
The settlement agreement was also unreasonable as a matter of law because it did not allocate between covered and non-covered damages. The trial court failed to distinguish between repair-and-replacement damages caused by work Lambert was hired to perform – to which Exclusion l applied – and damages to adjacent structures that were not caused by, though arising from, Lambert’s construction work.