Coverage for Faulty Workmanship Denied

Tred R. Eyerly | Insurance Law Hawaii

    The court found that the insurer had no duty to defend claims against the insured for faulty workmanship. HT Services, LLC v. Western Heritage Ins. Co., 2020 U.S. Dist. LEXIS 123664 (D. Colo. July 10, 2020). 

     Western Heritage Insurance Company issued three concurrent general liability policies to HT Services, LLC. The policies insured two properties owned by HT in Colorado Springs, its offices and vacant land. HT eventually developed a residential community on the vacant land. In January 2016, the homeowners’ association filed suit against HT for negligent design and construction of a retaining wall at the project. 

    HT requested Western to defend and indemnify against the suit. Western denied coverage and HT sued. HT asserted that Western had a duty to defend and asserted claims for declaratory relief, breach of contract and bad faith. HT moved for partial summary judgment on its claims for declaratory relief, seeking a determination of its rights under the policies. Western moved for summary judgment on all of HT’s claims. 

    The court found were was no reasonable interpretation of the AOAO’s complaint that would require coverage under the policies. The underlying complaint alleged that HT “defectively designed and/or constructed retaining walls” during the development and “breached the duties owed to the AOAO by negligently, carelessly, tortiously, and wrongfully failng to use reasonable care in the design and/or construction of the improvements.” These allegations fell within several exclusions in the policies. 

    First the policies excluded from coverage claims or suits for work on condominiums or any other type of residential structure. A retaining wall was not itself a “residential structure.” But the exclusion applied to activities “relating to or in any way connected with” the construction of residential structures. The retaining wall was constructed as part of the development and fit within the exclusion. 

    Second, another exclusion provided, “This insurance does not apply to ‘property damage’ to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Under Colorado law, this provision did not require an insurer to defend its insured in a suit for damages to repair mistakes made in construction of the project. There was no plausible reading of the underlying complaint that would trigger coverage.

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