Contractor Prevails on Summary Judgment To Establish Coverage under Subcontractor’s Policy

Tred R. Eyerly | Insurance Law Hawaii

   When sued for construction defects caused by the subcontractor, the general contractor was granted summary judgment on the issue of coverage under the subcontractor’s policy. Meritage Homes of Ga. v. Grange Ins. Co., 2021 U.S. Dist. LEXIS 84591 (N.D. Ga. March 23, 2021). 

    Meritage built a home for the owners. Easterwood Excavating, Inc. was the subcontractor for excavation and grading work. Meritage was named an additional insured under Easterwood’s policy with Grange.

    After construction was completed, the owners were experiencing severe flooding after rain storms purportedly due to defects in the grading, site preparation and excavation. The owners filed an arbitration against Meritage for damages. The owners alleged that Meritage improperly excavated and graded their lot, causing water to collect and pool in their yard. Meritage denied all liability and looked to Easterwood and Grange for defense and indemnification. Grange denied coverage, contending there was no occurrence which resulted in property damage. The arbitrator found that the folding of water was caused by Meritage’s improper grading of the lot. A Final Award in the amount of $129,530.93 was issued against Meritage. 

    Meritage filed suit against Grange. On cross motions for summary judgment, Grange argued the dispositive issues were whether Meritage’s claims constituted “property damage” under the policy, and if so, whether Meritage’s claims fell within the exclusions under the policy. Under Georgia law, coverage for faulty workmanship was limited to cases where the faulty workmanship damage was to other non-defective property or work. Here, the parties agreed that the owners alleged that the defective grading ruined the landscaping at the property. Additionally, the owners alleged that they suffered the loss of use and enjoyment of their home. Therefore, there was a claim for property damage beyond the defective work done by Easterbrook. 

    Nevertheless, Grange argued that the owners’ allegations fell with the business risk exclusions because as the general contractor, Meritage was responsible for the entire project, and it was Meritage’s scope of work that was to be considered in deterring whether there were allegations of property damage beyond faulty workmanship, not Easterbrook’s scope of work. The court agreed that Easterbrook, not Meritage, was the named insured under the policy. Therefore, the policy would not cover Easterbrook’s faulty workmanship if Easterbrook sought coverage. But there would have been coverage for claims raised by Easterbrook for damage to property other than the defective grading and excavating. It was this coverage the Additional Insured was entitled, nothing more. Grange had a duty to defend Meritage in the underlying arbitration and Heritage was entitled to summary judgment on this issued.

    Turning to the duty to indemnify, some portion of the Final Award was for damage to property other than that which fell within Easterbrook’s scope of work This meant Grange had a duty to indemnify as to at least some of the damages awarded against Meritage. Therefore, Meritage was also entitled to summary judgment on the duty to indemnify. 

    The portions of the Final Award for the costs of construction work to alleviate the water problems cause by the defensive grading and excavating and the costs of professional engineering expenses required to determine how to correct the deficiencies in the grading and excavation were not part of the amount of indemnification, 

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