Greystone Constr., Inc. v. Nat'l Fire & Marine Ins. Co.

• Decision Date: 01 November 2011
• Docket Number: No. 09–1412.,09–1412.
• Citation: 661 F.3d 1272
• Parties: GREYSTONE CONSTRUCTION, INC., Peter J. Hamilton, the Branan Company, Carl K. Branan, Michael C. Branan, and American Family Mutual Insurance Company, Plaintiffs–Appellants, v. NATIONAL FIRE & MARINE INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

661 F.3d 1272

GREYSTONE CONSTRUCTION, INC., Peter J. Hamilton, the Branan Company, Carl K. Branan, Michael C. Branan, and American Family Mutual Insurance Company, Plaintiffs–Appellants,

v.NATIONAL FIRE & MARINE INSURANCE COMPANY, Defendant–Appellee.

No. 09–1412.

United States Court of Appeals, Tenth Circuit.

Nov. 1, 2011.

L. Kathleen Chaney, Lamdin & Chaney, LLP, Denver, CO, for Appellants.

Peter J. Morgan (Evan P. Lee with him on the brief) Baldwin Morgan & Rider, P.C., Denver, CO, for Appellee.

Before MURPHY, McKAY, and TYMKOVICH, Circuit Judges.

TYMKOVICH, Circuit Judge.

This appeal requires us to consider whether property damage caused by a subcontractor's faulty workmanship is an “occurrence” for purposes of a commercial general liability (CGL) insurance policy. We hold that because damage to property caused by poor workmanship is generally neither expected nor intended, it may qualify under Colorado law as an occurrence and liability coverage should apply.

This issue arises from the appeals by Greystone Construction, Inc., The Branan Company, and American Family Mutual Insurance Company (American) of the district court's grant of summary judgment in favor of National Fire & Marine Insurance Company (National). The district court held National does not owe Greystone and Branan defenses under their commercial general liability (CGL) insurance policies, because the complaints brought against them do not allege covered “occurrences” under the policies' standard terms. According to the district court, the complaints alleged injuries arising from faulty workmanship, and such injuries are not “accidents.”

Exercising jurisdiction under 28 U.S.C. § 1291, we VACATE and REMAND for reconsideration.

I. Background

The relevant facts are undisputed. In June 2001, Richard and Lisa Hull purchased a house built by Greystone, a Denver-area general contractor. Greystone employed subcontractors to perform all work on the house. As is common along Colorado's front range, the house was built on soils containing expansive clays. Over time, soil expansion caused the Hulls's foundation to shift, resulting in extensive damage to the home's living areas, including the upper-level living areas, porch, patio, garage, and driveway. This damage was unintended and unanticipated.

The Hulls sued Greystone in 2005 for their damages, asserting defective construction by the subcontractors who installed the foundation. This claim was premised on the theory the house was damaged due to a subcontractor's negligent design and construction of the house's soil-drainage and structural elements, which caused dangerous exposure to shifting soils.

Greystone was insured under CGL policies provided by two insurers. American provided policies for 2001 to 2003, and National provided policies for 2003 to 2006. The American and National policy periods did not overlap. Upon receiving the Hulls's complaint, Greystone tendered a claim to American, which had insured the builder during construction. American defended the builder subject to a reservation of rights under the policy. Shortly afterward, Greystone also tendered the suit to National, which denied it owed Greystone a defense at all.

The other home at issue was purchased by Douglas and Sandra Giorgetta in August 1999. Like Greystone, Branan, the general contractor, hired subcontractors to perform all work on the house. The home's foundation also shifted as a result of expansive soils. In January 2006, the Giorgettas sued Branan, asserting claims mirroring those the Hulls brought against Greystone. Branan was insured under CGL policies with American for 1998 to 2003, and under CGL policies with National for 2003 to 2005. Once again, American provided a defense subject to a reservation of rights, while National denied it was obligated to defend.

In district court, the builders and American sought to recover a portion of their defense costs from National. The threshold issue was whether property damage resulting from faulty construction was an “occurrence” under the terms of the policies. After discovery, the parties moved for summary judgment on this issue. Relying on a recent Colorado Court of Appeals decision, General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo.App.2009), the district court awarded summary judgment to National, holding the Hull and Giorgetta complaints do not allege accidents that would trigger covered occurrences under National's policies.

This appeal followed. We sought to certify the question before us to the Colorado Supreme Court, which declined to consider the issue. Then, after oral argument, and in response to General Security, the Colorado General Assembly enacted C.R.S. § 13–20–808, which was designed to clarify Colorado law on some of the legal issues involving CGL policies. We then requested and received additional briefing on whether the new provision resolves the policy interpretation issue in the appellant's favor as a matter of law.

II. Discussion

Greystone and the general contractors challenge the district court's summary judgment ruling on two grounds. First, they contend § 13–20–808 applies to their claims, effectively resolving the policy interpretation issue in their favor. Second, they assert that regardless of § 13–20–808, the complaints allege covered “occurrences” under the standard terms of the policies. In response, National asserts § 13–20–808 does not apply to this case, and further that construction defects are not “occurrences” but rather the foreseeable result of poor workmanship, which is not covered by a CGL policy.

We review a district court's decision to grant summary judgment de novo, applying the same legal standard the district court used. Simms v. Okla. ex rel. Dep't of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.1999). “Summary judgment should be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Bowling v. Rector, 584 F.3d 956, 963–64 (10th Cir.2009) (internal quotation marks omitted).

A. Relevant CGL Language

The terms of Greystone's and Branan's CGL policies with National, which are versions of the post–1986 standard-form CGL policy, are identical in all material respects. The policies read:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” ¹ to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply....

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “ occurrence ” that takes place in the “coverage territory”;

(2) The “bodily injury” or “property damage” occurs during the policy period;....

R. at 146–47.

According to the policies, property damage must arise from an “ occurrence.” An occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” R. at 147 (emphasis added). The policies do not define the term “accident,” but as we discuss below, the term has been considered in a number of Colorado cases. Generally, under Colorado law an accident is “an unanticipated or unusual result flowing from a commonplace cause.” Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1201 (Colo.App.2003) (applying Carroll v. CUNA Mut. Ins. Soc'y, 894 P.2d 746, 753 (Colo.1995)). “[I]t is the ‘knowledge and intent of the insured’ that make injuries or damages expected or intended rather than accidental.” Hoang v. Monterra Homes LLC, 129 P.3d 1028 (Colo.App.2005) (quoting Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1088 (Colo.1991)).

The policies contain certain business-risk exclusions, the most relevant of which is the “your work” exclusion:

l. “Property damage” to “ your work ” ² arising out of it or any part of it and included in the “products-completed operations hazard.” ³

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.Id.

The policyholders contend the CGL policy language covered the property damage because, even if the damage was caused by faulty workmanship, it arose unforeseeably as a result of a defective foundation that was subject to damage from the continuous exposure to harmful soil conditions. Moreover, under any interpretation of “your work,” the exclusion does not apply because all relevant work was completed by subcontractors.

B. C.R.S. § 13–20–808

Before considering whether the policies cover the property damage at issue, we must first answer a threshold question: does § 13–20–808, which defines the term “accident” for purposes of Colorado insurance law, apply retroactively to this case? If it does, faulty workmanship would be covered under the policies. We conclude, however, that § 13–20–808 has no retroactive effect and does not apply to this appeal.⁴

Following the district court's summary judgment ruling and oral argument for this appeal, § 13–20–808 became law. Section 13–20–808 expressly criticizes General Security and establishes an explicit statutory definition of “accident” under Colorado law:

In interpreting a liability insurance policy issued to a construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured. Nothing in this subsection:

(a) Requires coverage for damage to an insured's own work unless otherwise provided in the insurance policy; or

(b) Creates insurance coverage that is not included in the...