Insurance Construction Claims
Insurer On The Hook To Defend Faulty Construction Claims
Ben Conarck | Law360
February 9, 2015
A federal judge on Friday ruled that North American Capacity Insurance Co. must defend a contractor against faulty construction claims lodged by a Nevada homeowners' association, finding that two exclusion clauses in a general liability policy do not apply to the underlying suit.
North American had refused to defend the construction company after fellow insurer Gemini Insurance Co., which had also sold policies to the contractor, demanded it jointly fund the defense of the suit filed by the homeowners' group. North American argued that its policy contained applicable exclusions and that the damage occurred before the policy took effect.
But U.S. District Judge Larry Hicks found the exclusions inadequate, in part because the complaint against the construction company did not say when the damage occurred.
“Instead, it merely alleges that the repairs ‘were defective, unsafe and/or unsuitable for the intended use and purpose in numerous particulars’ that were identified throughout the complaint,” Judge Hicks said in granting Gemini summary judgment.
The dispute centers on repair work performed between 2002 and 2003 at vacation condos known as The Pointe at Third Creek in Incline Village, Nevada. The Pointe Homeowners Association filed suit in 2010 against Valentine Construction, which had retained Olsen Construction Co. to provide the labor and materials for deck repairs, alleging that the repairs caused leaking, water damage and mold as a result.
Gemini, which issued policies to Olsen prior to the North American policy at issue, agreed to defend Olsen in July 2010. The insurer later named North American, which had a separate policy agreement with the construction company, as a defendant in the case, but North American refused to participate.
Gemini then filed suit against North American in February 2014 for declaratory relief and an equitable stake in the lawsuit, arguing that the North American policy coverage was triggered by the case against Olsen.
For its part, North American argued that Olsen’s work performed for the HOA fell under two exclusions, primarily the “designated work exclusion” which stated that the insurer had no duty to defend Olsen for its own work, defined in part as “operations ‘conducted by [Olsen] or on [Olsen’s] behalf for residential homeowners' associations.'”
But Judge Hicks was convinced by Gemini’s argument that the exclusion was too ambiguous and should therefore be interpreted in favor of the insured, as well as the fact that it did not “clearly identify whether it refers only to conduct during the policy period, or if it also applies to work performed by Olsen before the policy went into effect.”
As a fallback argument, North American had pointed to a “pre-existing damage exclusion,” which stated that the coverage does not apply to property damage that occurred before the policy began or was in the process of occurring before the policy began.
To counter this defense, Gemini asserted that the case against Olsen did not specify the date on which the property damage occurred, and that North American never produced any evidence that it occurred before the policy went into effect in February 2005, an argument with which Judge Hicks ultimately sided.
Judge Hicks also turned aside North American's argument that Gemini’s triggering of a policy that ran from 2002 to 2003 and subsequent decisions not to trigger policies covering periods after that time indicated that the insurer placed the damage in the 2002 to 2003 window.
“Although North American’s argument is well taken, the Gemini policy included many exclusions, and North American has produced no evidence to cast doubt on Gemini’s statement that the decision to trigger the first policy was discretionary, or that the decision to trigger the second and third policies was based on the pre-existing damage exclusion,” Judge Hicks said.
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