Tred Eyerly – August 25, 2014
The homeowners’ assigned claims against the general contractor’s insurer were barred by business risk exclusions in the CGL policies. W. Heritage Ins. Co. v. Cannon, 2014 U.S. Dist. LEXIS 101382 (E.D. Wash. July 24, 2014).
The Cannons contracted with Cook Custom Homes to build their home. Cook never hired a soil engineer. The lot was excavated and the basement foundation was back-filled. When the Cannons moved in, they noticed cracks throughout the foundation, basement slab, ceilings and driveway. The Cannons’ home was rendered uninhabitable.
The Cannons sued Cook. Cook agreed to a confession of judgment and assignment of its rights against Western Heritage, who defended Cook under a reservation of rights. Western Heritage filed an action for declaratory judgment.
In its motion for summary judgment, Western Heritage argued numerous exclusions applied to bar coverage. First was the subsidence exclusion which stated the policy did not apply to “‘property damage’ arising out of or aggravated by the subsidence of land . . . whether arising from natural causes or resulting from the operations of the Named insured or any other subcontractor of the Named insured.” The court agreed this exclusion barred coverage, but it was only present in the first Western Heritage policy issued to Cook, not the second policy.
Western Heritage, however, argued that the business risk exclusions in the second policy barred coverage. Exclusion j (5) barred coverage to “that particular part of real property on which you or your contractors or subcontractors . . . are performing operations, if the property damage arises out of those operations.” Exclusion j (6) barred coverage for property damage “to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”
The negligence of Cook and its subcontractors in use of improper fill soil and in placing the foundation on that unstable soil – tasks that were Cook’s “work” – resulted in subsidence that caused damage to the home itself. The house and fill soil comprised the “particular part” of property damaged because Cook’s work “was incorrectly performed on it” and damaged while Cook was “performing operations.” Therefore, Exclusions j (5) and j (6) barred coverage.
Western Heritage also argued that the products-completed operations hazard exclusion barred coverage of damages incurred after the completion of construction, when the Cannons assumed possession of the home. The policy provided:
This insurance does not apply to:
1. Damage to Your Work
“Property Damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
The products-completed operations hazard included all property damage “arising out ‘your product’ or ‘your work’ except . . . [w]ork that has not yet been completed or abandoned.”
Under this language, the exclusion applied to preclude coverage of damages occurring after completion of the project. Here, the damage arose out of the fill soil work Cook performed during the course of operations. Any damage from defective fill continuing after completion of the project was by definition property damage “arising out of ‘your product’ or ‘your work’ except . . . [w]ork that has not yet been completed or abandoned.”
via Insurance Law Hawaii: Business Risk Exclusions Bar Coverage for Construction Defect Claims.