Although the court determined there was an occurrence, coverage was excluded by the business risk exclusions. See Cont'l W. Ins. Co. v. Shay Constr. Co., 2011 U.S. Dist. LEXIS 82839 (D. Colo. July 28, 2011).
White was the general contractor on the project. White had three subcontracts with Shay to provide framing, siding, and related work on the project. Shay was insured under a CGL policy issued by Continental Western.
Two of Shay's subcontractors furnished materials, labor and equipment to Shay. These subcontractors filed suit in state court alleging they had not been compensated for the work and materials. White and Shay were named as defendants. White cross claimed against Shay, alleging Shay had breached its obligations under the subcontracts. Several allegations sounded in contract. Other allegations, however, contended Shay had performed defective work and had damaged the work of other trades in correcting deficiencies in its own performance.
Shay sought coverage under Continental Western's policy. Continental Western filed suit for a declaratory judgment and moved for summary judgment.
The federal district court agreed with Continental Western that a significant portion of the cross claims alleged the failure to provide services as promised in a contract, not property damage arising from an accident. The court noted the Colorado Court of Appeals had held that a claim for damages arising from poor workmanship, standing alone, did not allege an accident. See Gen. Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009). Gen. Sec., however, noted under a corollary that an "accident" and "occurrence" were present when consequential property damage was inflicted upon a third party as a result of the insured's activity.
Here, the cross claims could be interpreted to allege an occurrence under the corollary in Gen. Sec.because Shay's defective work allegedly required repair that resulted in damage to the work product of other trades. These allegations showed not only poor workmanship, but also damage to a third party as a result.
Turning to the exclusions, however, the court determined there was no coverage based on Exclusions (j) (5) and (j) (6). Exclusion (j) (5) barred coverage for property damage to "That particular part of real property on which you . . . are performing operations, if the 'property damage' arises out of those operations." This exclusion applied to both Shay's allegedly defective work and the damage Shay allegedly caused to the work of other trades when it repaired its own work.
Similarly, Exclusion (j) (6) barred coverage for "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." "Your work" was defined as any "work or operations performed by you or on your behalf." This was also broad enough to include both Shay's defective work and the damage it inflicted directly on other work in its repair of its poor workmanship.
Consequently, Continental Western had no duty to defend Shay.
