Greystone Case Summary
Greystone Construction et al v. National Fire & Marine Insurance Co.
No. 09-1412, 10th Cir (November 1, 2011)
This case analyzes whether the faulty workmanship of a subcontractor, resulting in damage to a home’s foundation and other parts, is an “occurrence” for purposes of a commercial general liability (CGL) policy, and whether a newly enacted law, C.R.S. § 13-20-808, has retroactive application to the case.
Two similarly situated homeowners complained when subcontractors allegedly performed faulty design and construction work on both homes’ soil-drainage and foundation structures. Both homes were built on expansive soils common to Colorado. One of the insurance providers for the two homebuilders (American) defended the builders, but the other provider (National) denied it owed the builders a defense. The trial court, relying on the Colorado Court of Appeals decision in General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo. App. 2009), awarded summary judgment to National, holding that the complaints did not allege accidents that would trigger covered “occurrences” under National’s policies.
The CGL policies at issue are versions of the post-1986 standard form policy, and are identical in all material respects. The policies indicate that the insurers are obligated to pay damages for ‘bodily injury’ or ‘property damage’ to which the insurance applies, and have the right and duty to defend the insured against any suit seeking damages for the same to which the insurance coverage does not apply. The damage must arise from an occurrence, which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” An accident, in Colorado, is the unanticipated result of a commonplace cause, and whether damages are expected rather than accidental flows from the knowledge and intent of the insured.
CGL policies contain certain exclusions; the most germane here is the “your work” exception. This exclusion states that property damage arising out of work performed by the contractor or on his behalf, or from materials supplied in connection with such work, is not covered by the policy. However, this exclusion does not apply if a subcontractor performed the damaged work or the work out of which the damage arises. In this case, both sets of homeowners allege that subcontractors performed the faulty foundation work leading to damage in other areas of the homes.
The 10th Circuit Court made the following determinations:
1. C.R.S. § 13-20-808 has no retroactive effect and does not apply to this appeal.
Section 13-20-808 establishes an explicit statutory definition of accident under Colorado law, wherein work that results in property damage is an accident unless the property damage is intended and expected by the insured. If the section has retroactive effect it would settle this appeal in favor of the general contractors and American Family Insurance, because the general contractors did not intend or expect the damage to the homes. However, the Court determined that because there was no indication of legislative intent to make the statute retroactive, and because other state courts have suggested that the provision does not apply retroactively, the statute does not apply retroactively.
2. Injuries flowing from improper or faulty workmanship constitute an “occurrence,” so long as the resulting damage is to non-defective property and is caused without expectation or foresight.
The decision in General Security has persuasive, but not binding, effect in this case where jurisdiction is based on diversity of citizenship, and there is no controlling decision by the Colorado Supreme Court. The 10th Circuit predicts that the Colorado Supreme Court would construe the term “occurrence” in a CGL policy as encompassing “unforeseeable damage to non-defective property arising from faulty workmanship.” In the Court’s determination, foreseeability, rather than fortuity, is the important deciding factor, Therefore, damage caused to the non-defective portions of the builder’s work (i.e. other parts of the house built without defect) may be covered by the policy as an “occurrence,” while the damage to the defectively constructed portions of the house (here, the soil-drainage and structural elements) would not be covered and does not trigger an insurer’s duty to defend.
Summary judgment was vacated and the case remanded for reconsideration in light of the 10th Circuit Court of Appeals findings in this matter.