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Is there coverage for contruction defect claims in Colorado? Part 2: Did we go from bad to worse?

In Greystone Const., Inc. v. National Fire & Marine Ins. Co., 649 F.Supp. 2d 1213 (D. Colo. 2009), a contractor and one of its insurers brought an action against a second insurer after the second insurer refused to fund the contractor’s defense in construction defect actions brought by homeowners.

Relying heavily upon the reasoning of the General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009) court, the Federal District Court for Colorado closely examined whether the plaintiff’s complaints for damages that would constitute an “occurrence” under the relevant insurance policy. The court found only “conclusory references to consequential damages,” and a failure “to provide specifics by which [the insurance carrier] or [the] court could ascertain what those damages were and whether they involved something other than [the subcontractor’s] work product.” Greystone Const., 649 F.Supp. 2d at 1220. The Court went on to state that property damage only to the home itself was insufficient to create a duty to defend or indemnify under the subject commercial general liability insurance policy. Id.

This case emphasizes the need to be especially diligent and thorough when drafting complaints in construction defect matters. Additionally, the Greystone case makes clear that general allegations of “consequential damages” without specific explanation as to the nature of such damages, may fail to trigger insurance coverage and therefore an insurance carrier’s duty to defend or to indemnify.

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