Become Familiar With Your CGL Policy Exclusions to Ensure You Are Covered: Wardcraft v. EMC.

In a recent case arising out of a denial of coverage for alleged construction defect claims concerning a pre-fabricated home, the U.S. District Court for the District of Colorado applied the 10th Circuit’s determination of what can constitute an “occurrence” under a commercial general liability (“CGL”) policy.  SeeWardcraft Homes, Inc. v. Employers Mutual Cas. Co., 2014 WL 4852117 (D. Colo. September 29, 2014).  William and Grace Stuhr sued Wardcraft, which manufactured pre-fabricated homes at a facility in Fort Morgan, Colorado, because their home was not completed as scheduled and contained various defects.  The Stuhrs filed suit against Wardcraft alleging negligence, breach of warranty, and deceptive trade practices in violation of the Colorado Consumer Protection Act.   

Wardcraft tendered the Stuhrs’ complaint to Employers Mutual Casualty Company (“EMC”), which denied coverage under its policy and denied any duty to defend.  According to EMC, the Stuhrs’ alleged construction defects were not property damages and there was no occurrence in connection with faulty workmanship.  Approximately two and a half years after they filed their initial complaint, the Stuhrs filed an amended complaint.  Wardcraft did not tender this amended complaint to EMC, and first informed EMC about the amended complaint about a year after it was filed.  A month prior, Wardcraft settled with the Stuhrs. 

About the same time, Wardcraft commenced suit against EMC, claiming it was entitled to a defense and indemnity under the EMC policy.  See Wardcraft Homes, Inc., 2014 WL at *2.  Wardcraft alleged breach of contract, bad faith breach of insurance, and unreasonable conduct pursuant to C.R.S. §§ 10-3-1115 and 10-3-1116.  Wardcraft filed a motion for partial summary judgment, arguing that EMC breached its duty to defend.  EMC filed a motion for summary judgment asserting it had no duty to defend or indemnify, and that Wardcraft’s bad faith and unreasonable conduct claims were barred by the applicable statute of limitations. 
In its motion, Wardcraft argued that EMC’s duty to defend arose from the allegations in the amended complaint.  Id. at *4.  The court noted, however, that Wardcraft failed to provide any evidence disputing EMC’s allegation that Wardcraft did not tender the Stuhrs’ amended complaint to EMC.  In its analysis, the court referred to the Greystonecourt’s prior determination that an occurrence under a CGL policy can encompass “unforeseeable damage to non-defective property arising from faulty workmanship.”  Id. (quoting Greystone Constr., Inc. v. National Fire & Marine Ins. Co., 661 F.3d  1272, 1282 (10th Cir. 2011)).  “In other words, ‘injuries flowing from improper or faulty workmanship constitute an occurrence so long as the resulting damage is to non-defective property, and is caused without expectation or foresight.”[1]  Id. (quoting Greystone Constr., Inc., 661 F.3d at 1284). 

The Wardcraft court applied Greystone to the Stuhrs’ complaint to determine whether it contained a factual or legal basis to conclude that the claimed damages resulted from an occurrence.  Although the court found no indication of any actual or consequential damages from a non-defective aspect of the Stuhrs’ home alleged in their complaint, it did find allegations of loss of use, which the court noted constituted property damage under Wardcraft’s EMC policy.  See Wardcraft Homes, Inc., 2014 WL *5.  As a result, the court found that the Stuhrs’ complaint alleged an occurrence with respect to property damage in the form of loss of use of property that was not physically injured. 

However, EMC argued that coverage was barred by the impaired property exclusion. Wardcraft apparently did not respond to this argument, and thus, the court found Wardcraft conceded EMC’s argument on the issue.  “Even if the Stuhr Complaint contains allegations that damages were caused by delay after the home was considered real property, the Stuhrs’ home would be considered impaired property under the EMC policy.”  Id. at *7.  The court concluded EMC satisfied its burden of showing that the impaired property exclusion applied to the alleged occurrence thereby finding the Stuhr complaint contained no factual or legal basis upon which to conclude that EMC would be liable for property damage as defined by the policy. 

Wardcraft attempted to craft another argument to support its allegation that EMC owed a duty to defend under the policy’s personal and advertising injury coverage.  According to Wardcraft, EMC’s potential liability for breaching its duty to defend arose out of its “use of another’s advertising injury.”  Id.  Finding little guidance from Colorado courts, the court looked to other jurisdictions that have been presented with this issue.  Those courts “have held that the ‘use of another’s idea’ means the ‘wrongful taking of the manner by which another advertises its goods or services’ or the ‘wrongful taking of an idea about the solicitation of business.”  Id. at *8.  The Wardcraft court found no allegation in the Stuhrs’ complaint that Wardcraft misappropriated the Energy Star moniker, and thus, found no advertising injury alleged in the Stuhrs’ complaint to implicate the EMC’s policy’s coverage for advertising injury.  Accordingly, the court granted EMC’s motion for summary judgment on the duty to defend, and found no corresponding duty to indemnify arising from the Stuhr complaint. 

The Wardcraftcase emphasizes the importance of reviewing your CGL policy and its exclusions to ensure you are purchasing insurance that will protect you.  For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at

[1] It is important to note that this requirement to resulting or resultant damage to non-defective property is in terms of an occurrence under a CGL policy, and not necessarily a requirement in a civil lawsuit.         


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