In General Security Indemnity Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009), a framing subcontractor’s insurer brought a contribution and indemnification action against a sub-subcontractor’s commercial general liability insurers. The framer’s carrier sought relief for the sub-sub’s insurer’s failure to fund the framing subcontractor’s defense costs related to the third-party complaint filed by the general contractor.
The Court of Appeals held that complaints in construction defect actions that allege only poor workmanship do not allege an “occurrence” sufficient to trigger a duty to defend in the typical CGL policies. The Court of Appeals, in reaching its decision, adopted the reasoning of the Cyprus Amax Minerals, Hecla Mining Co. v. New Hampshire Ins. Co., and Union Ins. Co. v. Hottenstein courts. The court cited these cases in support of the following principles:
- In determining whether a duty to defend exists, a trial court must limit its examination to the four corners of the underlying complaint. Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003);
- An insurer’s duty to defend arises when the underlying complaint against the insured alleges any facts that might fall within the coverage of the policy. Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1089 (Colo.1991);
- Poor workmanship constituting a breach of contract is generally not an accident that constitutes a covered occurrence. Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1199 (Colo. App. 2003).
Litigants seeking recovery of damages for construction defects under an insurance policy must be especially diligent and thorough when drafting their complaints. In practical terms, this means inclusion of any known damage resulting from defective workmanship. Unfortunately, in many cases, resulting damage may not be apparent until long after a complaint is drafted and experts have had a chance to inspect the work of a given construction professional.