Duty to Defend Construction Defect Case Triggered by Complaint’s Allegations

Tred Eyerly – Insurance Law Hawaii – August 20, 2014

The subcontractor’s insurer could not escape contributing to defense costs of its insured when coverage was possible based upon the underlying complaint’s allegations. Seneca Ins. Co. v. James River Ins. Co., 2014 U.S. Dist. LEXIS 97156 (D. Ore. July 17, 2014).

The underlying action alleged construction defects in a 60-unit complex located in Seaside, Oregon. S.D. Deacon Corp. was the general contractor and contracted with the owners association to reconstruct portions of the building, including the curtain wall. Deacon subcontracted with Superwall Design, LLP for work on the curtain wall renovation.

At some point not specified in the underlying complaint, the Association notified Deacon of construction defects in the curtain wall renovation. Deacon investigated and concluded that the alleged property damage was the result of inadequate usage of materials, violations of state and local building codes, and violations of relevant industry standards relating to the work performed by Superwall. Deacon contended that the problems were caused by Superwall’s faulty workmanship.

Deacon put Superwall on notice of the construction defect claims in a letter dated January 24, 2012. Deacon tendered its claim as an additional insured under Superwall’s policies to James River and Travelers. Deacon filed the underlying action against Superwall, and sent James River a copy of the complaint by email on October 25, 2012. James River denied the tender with no explanation.

Deacon later amended its complaint and added another defendant, Beeline Glass Company, which Decon hired on July 8, 2011 to assist Superwall.

James River argued that Deacon’s pleadings contained allegations from which James River could conclude the alleged damage occurred before the policy’s effective date of September 26, 2011, thereby excluding such damage from coverage. James River relied on Deacon’s allegation that it had to hire Beeline to assist with Superwall’s work in July 2011. Thus, James River’s argument that the fact that Superwall performed work on the project in the summer of 2011, coupled with Deacon’s allegations that Superwall’s work was defective, demonstrated that the alleged damage occurred, or began to occur, prior to the policy’s effective date.

The court did not find this argument convincing. The fact that Superwall performed work on the Project in the summer of 2011 did not mean its work was finished prior to the inception of the policy. Similarly, an allegation that remedial work was performed in the fall of 2011 did not establish when in the fall the remedial work was performed.

Therefore, James River’s duty to defend was triggered by the allegations in Deacon’s complaint and the duty was not extinguished by any allegations in Deacon’s amended pleadings.

via Insurance Law Hawaii: Duty to Defend Construction Defect Case Triggered by Complaint’s Allegations.

Leave a Reply