Colorado Federal Court Confirms Consequential Property Damage, But Finds No Coverage for Subcontractor

A recommended decision from the Magistrate Judge of the Federal District Court for the District of Colorado found there was no coverage for the subcontractor’s faulty workmanship, but recognized that Colorado finds consequential damages to be property damage. Indian Harbor Ins. Co. v. Houston Cas. Co., 2022 U.S. Dist. LEXIS 117857 (D. Colo. July 5, 2022).

The insured, Tripp Construction, was a subcontractor for constructing balconies at an apartment complex. The owner complained that Tripp failed to properly install balconies.  The defective installation of certain balcony components damaged other, non-defective components.

The general contractor had an OCIP policy issued by Houston Casualty Company (HCC). The general contractor also had a Subcontractor Default policy issued by Indian Harbor.

When the apartment owners complained about the balconies to the general contractor, the general contractor submitted a claim to HCC. Coverage was denied because there was no “property damage.” HCC determined the claimed damage was only to defective work itself.

Subsequently, additional claims regarding the balconies were submitted to HCC. Indian Harbor argued that the additional damage included “damage to the underside of the balconies, soffits, and traffic coating,” thereby constituting property damage. HCC again denied the claims because there was no evidence of additional alleged damage.

Indian Harbor sued HCC and moved for summary judgment. Indian Harbor argued there was property damage caused by an occurrence, which extended to all damage resulting from faulty work. HCC cross-moved for summary judgment and argued that because the balcony was defectives, all damage was to already defective property.

The court held that a subcontractor’s defective work and damage to its own defective work product was not “property damage.” To trigger coverage, the deficient performance had to result in damage to nondetective third-party work product. In other words, injuries flowing from improper or faulty workmanship constituted an occurrence so long as the resulting damage was to nondetective property.

The court found that the subcontractor had to fix its defective work product, even though not every aspect or component of its installation was deficient. The CGL policy did not provide courage for such repairs. The mere fact that the soffits on the balcony were not defective but must be replaced as part of remedying other defects did not bring the damage within the coverage of the CGL policy.

Here, Indian Harbor could point to no damage to the doors from the apartments into the balcony, exterior paint, etc. All damage to the defective balconies, including damage suffered as a result of remediation or repair efforts, was damage to the subcontractor’s own defective work. Accordingly, the Magistrate Judge recommended that Indian Harbor’s motion for partial summary judgment be denied and HCC’s cross-motion to show the absence of a genuine dispute of material fact as to the existence of “property damage” be granted.

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