Analysis of the “owned property exclusion” under Panico v. State Farm

The U.S. Court of Appeals for the Tenth Circuit recently concluded that the “owned property exclusion” applied to bar coverage for claims of property damage. See Panico v. State Farm Fire and Cas. Co., 2011 WL 322830 (10th Cir. 2011). In Panico, the plaintiffs sold property in Aspen, Colorado to the Taylors, who sued the Panicos upon discovering the property was not as represented. After refusing to defend, the Panicos sued State Farm for breach of contract. The district court concluded that the Taylors’ claims were not covered under the Panicos’ insurance policies and granted summary judgment in State Farm’s favor. The U.S. Court of Appeals for the Tenth Circuit affirmed.

Mr. Panico built the house on the property as well as several additions to the house. As the Taylors lived in Florida, they primarily relied on their real estate agent and an inspector to ensure the property was acceptable. According to their complaint, the Taylors discovered that the house was “virtually uninhabitable due to serious design and construction defects, mold, rodents, and drainage problems.” Id. at *1. In their complaint, the Taylors asserted three claims for relief against the Panicos based upon misrepresentation and fraudulent concealment about the condition of the property.

The Panicos’ State Farm policy provided personal liability coverage for claims brought against an insured for bodily injury or property damage. The personal liability coverage provided:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice.

Importantly, the Panicos’ State Farm personal liability coverage was subject to an exclusion for “property damage to property rented to, occupied or used by or in the care of any insured.” Id. at *2. Despite the inclusion of allegations concerning Ms. Taylor’s respiratory problems and illness requiring medical attention after exposure to the property, the court concluded that State Farm had no duty to defend because the Taylors did not bring bodily injury claims, and the property damage claims were subject to the owned property exclusion.

While the court acknowledged Colorado law required an insurer to provide a defense if the underlying complaint alleged any facts or claims that might fall “within the ambit of the policy,” the court distinguished the allegations in the Taylors’ complaint. In its analysis, the court stated:

However, this rule does not mean that the mere mention of one or two facts that could constitute part of a covered claim triggers coverage if it is clear that those facts are not part of any claim for relief. If there is no claim, there is no duty to defend.

Id. at *3.

The court explained that Colorado courts look beyond the labels attached to a claim to determine whether it is truly a covered claim. As the Taylors’ complaint did not seek relief for bodily injury, State Farm’s duty to defend was not triggered.

With regard to the Taylors’ claims for property damage, the court indicated that said claims do not trigger a duty to defend because they are subject to the owned property exclusion. The court indicated that the Panicos cannot avoid the owned property exclusion whether it looks at the Panicos’ alleged misrepresentations concerning the property, their alleged negligent construction of the property, or their alleged negligent maintenance of the property. “All three would have taken place while the Panicos owned the property.” Id. at *4.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at


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