The federal district court assumed there was "property damage" caused by an "occurrence," but found the business risk exclusions barred coverage for construction defect claims. Hubbell v. Carney Bros. Constr., 2013 U.S. Dist. LEXIS 68331 (D. Colo. May 13, 2013).
The plaintiffs entered a construction contract with the insured general contractor to build a home. After the project was one-third completed, plaintiffs terminated the contract. Experts hired by plaintiffs found a failure to properly site the residence, as the house was constructed 48 feet from the intended location; violations of county height restrictions; failure to follow building plans, which were themselves deficient; and an improperly poured foundation. The experts estimated that the costs of repairing the property to be between $1.3 and $1.5 million, and that the cost of demolishing the structure and rebuilding it would be between $1.1 and $1.3 million.
After plaintiff filed suit, a stipulated judgment of $1.952 million was entered. Plaintiffs then filed a Writ of Garnishment in an attempt to garnish the insureds' policy with Employers Mutual Casualty Company (EMC).
Plaintiffs alleged, and EMC agreed, that the insureds' poor workmanship damaged the entire partially built structure. But even if there was "property damage" caused by an "occurrence," exclusions 2.j.(5) and 2.j.(6), the faulty workmanship provisions, barred coverage.
Exclusion 2.j.(5) excluded coverage for "that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations." Here, there was no doubt that the claimed property damage arose out of operations performed by the insureds and their subcontractors during the course of their work.
Exclusion 2.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." This exclusion barred coverage for "property damage" that directly or consequentially occurred from the faulty workmanship of the insured and its subcontractors. Here, the property damage occurred while the work was ongoing and was the result of the insureds and their subcontractors faulty workmanship. Therefore, such damage fell squarely within the exclusion.
