Cases of the Month

Significant Cases and Decisions Affecting the Construction Industry

By: Craig F. Martin

Lamson, Dugan & Murray, LLP

December 2014

1.  A manufacturer of building products’ CGL Policy provided coverage for defect claims. Cincinnati Ins. Co. v. AMSCO Windows, 2014 WL 6679589 (10th Cir. November 26, 2014).

*  What the Court Considered: The United States Court of Appeals for the Tenth Circuit considered an appeal from the United States District Court for the District of Nevada. The claim was originally brought to the district court by the window manufacturer’s insurer asserting that it had no duty to defend AMSCO, the window manufacturer, because the property damage claimed by the homeowners was not an occurrence under AMSCO’s insurance policy. AMSCO claimed that the plain language of the insurance policy obligated the insurer to not only defend the claims, but also pay any claims that resulted in judgments.

*  What the Court Said: The district court ruled in favor of AMSCO, finding that the insurer did have a duty to defend. The court focused its analysis on whether the faulty installation was intended or expected. Because the insurer could not show that AMSCO actually expected or intended for the damage to result from its defective windows, the court ruled that the insurer must defend against the claims.

*  What the Opinion Means: This is yet another opinion finding broad application of CGL insurance to a construction defect claim. The courts vary from state to state, so it will be important to understand how your courts will apply to law in determining whether an occurrence took place.

2. A plastering contractor’s CGL Policy did not provide coverage for a construction defect claim. . State Farm Fire and Casualty Co. v. Patrick McDermott, d/b/a Patrick McDermott Plastering (E.D. PA. October 14, 2014).

*  What the Court Considered: The United States District Court for the Eastern District of Pennsylvania considered an insurer’s claim that it did not have to defend a contractor against claims of construction defect. The underlying defect claim was brought by the general contractor, asserting that the plastering contractor’s work on 299 homes was defective.

*  What the Court Said: The Pennsylvania Supreme Court had earlier ruled that faulty workmanship does not constitute an “accident” and therefore cannot be considered an occurrence under commercial general liability policies. The federal judge agreed, finding that the plaster contractor’s failure to live up to his contractual obligations could not be seen as an accident or some unforeseeable event. The court further rejected the plaster contractor’s argument that the errors were inadvertent and unintentional.

*  What the Opinion Means: As noted above, whether a contractor will have coverage for defect claims may very well depend on the state’s law applied to the case.

Craig Martin is a partner in the firm of Lamson, Dugan & Murray, LLP, in Omaha, Nebraska; and is the primary author of the Construction Contractor Advisor blog, www.ConstructionContractorAdvisor.com.   For more information, or if you have any questions, please contact us at hlk@constructionchannel.net.