The business risk exclusions did not apply to bar coverage for the underlying claims of damage caused by a leaky roof. Westfield Ins, Co, v. Miller Architects & Builders, 2020 U.S. App. LEXIS 2972 (8th Cir. Jan. 30, 2020).
Miller began construction on luxury apartment complex, but was terminated a year after construction began. Significant architectural and structural problems caused by Miller and its subcontractors were found. The property owner threatened legal action and Miller sought coverage under its policy with Westfield.
The property owner sought damages from Miller in arbitration primarily for a leak in the roof. Rather than defending Miller, Westfield filed suit seeking a declaration relieving it of its obligation to defend and indemnify Miller. The district court concluded that Westfield had a duty to defend Miller because some claims were arguably covered by the policy. The court entered judgment against Westfield on the duty to defend issue. Westfield appealed.
In arbitration, the property owner had alleged that water came through a defectively installed roof and damaged the "finishes and electrical work in the building's interior." This claim arguably fell under the initial grant of coverage in the policy, which included "property damage" caused by an "occurrence." The harm to finishes and electrical work qualified as "property damage" under Minnesota law and the "faulty construction" was an "occurrence."
Westfield raised three exclusions. Exclusion (j)(5) provided there was no coverage for "property damage" to "that particular part of real property" upon which "contractors or subcontractors" were still "performing operations, if the property damage arose out of those operations." The second exclusion, (j) (6), apple to "property damage" to "that particular part of any property that must be restored, repaired or replaced because [Miller's] work was incorrectly performed on it." By using the word "property damage" in conjunction with "to . . . that particular part of the property," both exclusions were triggered only when the faulty work and the damage were to the same "part" of the property. It was far from clear that the roof, which was on the building's exterior, and the finishes and electrical work, which were in the building's interior, were the same "particular part of [the] property."
The court rejected Westfield's interpretation of the phrase "that particular part of the property" as including the whole apartment complex because Miller's responsibility extended to the entire project. Westfield's interpretation took out the words "that particular part" and would allow the excluded "part" to swallow the otherwise-included whole.
Exclusion (l) did not assist Westfield, either. It excluded "property damage to [Miller's] work," but it "does not apply if . . . the work out of which the damage [arose] was performed . . . by a subcontractor." By its terms, this exclusion "does not apply" here because a subcontractor built and installed the roof.
Therefore, claims against Miller did not "clearly" fall outside the scope of coverage. The alleged damages from the leaky roof were arguably within the policy's scope and there were no clearly applicable exclusions. Westfield could not except its duty to defend Miller.
