Subrogation lawsuit by prime contractor’s CGL insurance carrier against Subcontractor’s CGL carrier for failing to defend the prime was properly dismissed on summary judgment because “no conceivable interpretation of the complaints in the lawsuits at issue here could have triggered Hartford’s obligations under its policy with its insured.” A condominium developer sued its contractor alleging breach of contract by failing to provide defect-free work, and as a result, water damage occurred which required repair. The contractor tendered its defense to Hartford, the elevator subcontractor’s CGL carrier. In declining the tender, Hartford stated “The claims … involve economic loss arising our of a breach of agreement and inadequate design and construction. The damages are not ‘property damage’ or ‘bodily injury,’ nor are the damages he result of an ‘occurrence’ as defined by the Policy.”
Focusing just on what was included in the complaint’s allegations, the court found the complaint made no reference to any act or omission of the elevator subcontractor but instead alleged damages in the installation of vinyl siding, roofing, flashing, windows, and landscaping, none of which were the responsibility of the subcontractor. In highly critical terms, finding no duty to defend the prime contractor against the allegations, the court stated:
“The reading that Oregon Mutual urges us to adopt-that general allegations of water damage and construction defects implicates Otis’s elevator installation – lies beyond the range of conceivable reasonable interpretations and is simply speculative…. More broadly, any complaint alleging defective performance of a construction contract, without more, would implicate the insurer for every entity providing labor or materials to the project. In short, Oregon Mutual’s interpretation is unreasonable, and we decline to accept it.” Wellman & Zuck v. Hartford Fire Insurance, 285 P.3d 892 (Wash 2012).
Comment: Differences in the broad duty to defend and the more limited duty to indemnify were well explained by the court. It explained: “An insurance company’s duty to defend, which is broader than the duty to indemnify, arises at the time an action is first brought, and is based on the potential for liability. A lawsuit triggers the duty to defend if the complaint against an insured alleges facts that could, if proven, impose liability upon the insured within the policy’s coverage. With two exceptions not applicable here, the duty to defend must be determined from the complaint…. [I]f the insurance policy conceivably covers the allegations in the complaint, an insurer must defend the lawsuit.”
Language of additional insured endorsements are important when it comes to determining what duty a carrier has to the additional insured. From the discussion in the decision here it is apparent that the coverage provided was limited to property damage and bodily injury caused by the named insured for which the additional insured might have vicarious liability. The endorsement was not so broad as to provide coverage for economic losses. Nor would it even have provided coverage for property damage and bodily injury caused by anyone other than Otis Elevator, the Named Insured under the Hartford CGL policy.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 15, No. 6 (June 2013).
Copyright 2013, ConstructionRisk, LLC