In a brief opinion, the Second Circuit vacated the district court's denial of coverage for construction defects. Scottsdale Ins. Co. v. R.I. Pools Inc., 2013 U.S. App. LEXIS 5680 (2nd Cir. March 21, 2013).
The insured, R.I. Pools, employed outside companies to supply concrete and to shoot the concrete into the ground. During the summer of 2006, it obtained its concrete from one subcontractor and used another to shoot the concrete. In 2009, nineteen customers of R.I. Pools from 2006 complained damage to their pools, including cracking, flaking, and deteriorating concrete.
Scottsdale sought a declaratory judgment against R.I. Pools that it had no obligations under the policy to defend or indemnify for claims related to cracks in the pools. The district court granted the insurer's motion for summary judgment, reasoning that the defects in the insured's workmanship could not be considered "accidents." The court also ordered R.I. Pools to reimburse the Scottsdale for defense costs already expended.
The Second Circuit disagreed with this result. The policy included defects in the insured's own work within the category of an "occurrence." The district court read the subcontractor exception to the "Your Work" exclusion out of the policy. The judgment was therefore vacated and the case remanded for consideration of the subcontractor exception.
The district court also erred in granting reimbursement to the insurer. Because the duty to defend existed up until the point at which it was legally determined that there was no possibility for coverage, the insurer had not shown entitlement to any reimbursement for defense costs.
