Whether a contractor who failed to complete construction of a home had coverage for alleged construction defects was at issue in Clarendon Am. Ins. Co. v. Gen. Sec. Indem. Co. of Arizona, 2011 Cal. App. LEXIS 377 (Cal. Ct. App. March 2, 2011).
Hilmor Development contracted with the homeowners to serve as general contractor for the construction of a new home. The contract provided Hilmor would construct and complete the residence. On May 18, 2001, prior to completion of the residence, the homeowners terminated their contract with Hilmor. Construction of the residence continued without further participation by Hilmor.
In November 2004, the homeowners sued Hilmor alleging construction defects. Clarendon insured Hilmor under a CGL policy effective July 1, 2000 to July 2, 2001. General Security insured Hilmor under a CGL policy effective July 1, 2001 to July 1, 2002. Under General Security's policy, the products-completed operations hazard provision provided coverage for property damage that occurred after an insured's work was completed. Further, exclusions j (5) and j (6) barred coverage for property damage that arose out of operations in progress and for repairs to property where "your work" was incorrectly performed on the property.
Hilmor tendered the suit to Clarendon and General Security. Clarendon defended. General Security refused the tender, however, because: (1) Hilmor did not complete all of the work required by the contract prior to the inception of the General Security policy; and (2) the faulty workmanship exclusions barred coverage.
After Clarendon paid policy limits of $1 million to settle with the homeowners, it sued General Security for contribution. The insurers filed cross motions for summary judgment. The trial court found General Security's products completed operations hazard coverage did not apply because Hilmor did not complete the job. Moreover, exclusions j(5) and j (6) precluded coverage arising out of Hilmor's work during construction related to defective work and material.
The appellate court affirmed. It was undisputed Hilmor did not complete the work he was hired to do. Therefore, the completed-operations hazard did not provide coverage.
Under exclusion j (5), the insurer was not obligated to indemnify a policyholder for property damage that occurred while the insured was performing operations on the property. Coverage was also excluded under paragraph j (6) because the homeowners alleged "defects and deficiencies" in their residence due to poor workmanship and/or materials. Therefore, summary judgment was properly granted to General Security.
Thanks to my Damon Key blogging colleague, Robert Thomas (www.inversecondemnation.com) for the heads up on this case.
