Construction Defect Insurance Coverage Decided by Colorado Court

Construction defect coverage is an often litigated issue.  With contractor after contractor being sued for defective work, owners are constantly looking to the contractor’s insurance carrier to repair the defective work. Generally, the defective is work is not covered unless is results in other issues known as “third party damage,” such as leaking,

On April 12, 2012, the Colorado Court of Appeals issued its decision on TCD, Inc. v. American Family Mutual Insurance Co., 2012 WL 1231964 (Colo.App. 2012). The TCD opinion was not novel, and generally upheld the long standing notion that general liability policies do not cover construction defects.

In TCD, the developer asserted a counterclaim against the general contractor.  TCD claimed that the general contractor’s roofing subcontractor improperly installed the roof, and that the roof was so defective that TCD was unable to obtain a certificate of occupancy for the property. The claims included negligence and breach of contract.

The insurance company declined to provide coverage for the defective work, and the court of appeals was called upon to determine whether coverage was required in this matter. The court ruled that without a claim for property damage, the insurance carrier’s duty to defend the lawsuit was not triggered.  Claims for poor workmanship, standing alone, do not allege an “accident” that constitute covered “occurrences,” regardless how the underlying claim for relief is plead.

Nearly all States have this rule, and continue to enforce it, if somewhat unevenly.  If there is a claim for property damage, then a carrier will have the duty to defend: at least until they are able to have that claim dismissed for one reason or another.