Colorado Appellate Court Addresses Coverage for Resulting Damage
In General Security Indem. Co. v. Mountain States Mut. Cas. Co., 2009 Colo. App. LEXIS 215 (February 19, 2009), the Colorado Court of Appeals addressed the definition of occurrence in the context of property damage to work done by a subcontractor and that company’s sub-subcontractors. The homeowners’ association for the Summit at Rock Creek filed suit against D.R. Horton for alleged construction defects. D.R. Horton in turn sued its subcontractors, including Foster Frames, for indemnity. Foster Frames in turn filed a fourth-party complaint against its sub-subcontractors. General Security insured Foster Frames. General Security then brought an action against the insurers of the sub-subcontractors for contribution and indemnity. General Security brought motions for summary judgment against the defendant insurers arguing that each had a duty to defend Foster Frames, as an additional insured, against the D.R. Horton complaint.
The central issue was the definition of “occurrence” and how it applied to property damage in construction defect claims. The Court of Appeals first found that the majority rule is that damage to an insured’s own work is not an occurrence because such damage is not unexpected. The Court also followed the corollary to this majority rule that damage to the work of other contractors is considered an occurrence. Based on the facts before it, the Court of Appeals found there was no occurrence because the damage did not extend beyond the work of Foster Frames and its sub-subcontractors. The Court of Appeals ruled that the insurers for the sub-subcontractors did not have a duty to defend because there was no indication in the complaint that “consequential damage” went beyond the work of the sub-subcontractors. To the extent the D.R. Horton complaint alleged damage to other parts of the structure, those damages were wholly unrelated to the work of Foster Frames and there was no allegation connecting Foster Frames’ work to the claimed damage. The Court of Appeals rejected the argument that simply because a complaint states generally that there was “consequential damage” there was a duty to defend. The fact that the Court of Appeals considered the work of the subcontractor and its sub-subcontractors to be all the work of the subcontractor for the purposes of whether there was an occurrence may also impact how the definition is applied to general contractors in future cases.
