Farmington Cas. Co. v. Duggan, 04-1200.

• Citation: 417 F.3d 1141
• Decision Date: 01 August 2005
• Docket Number: No. 04-1200.,04-1200.
• Parties: FARMINGTON CASUALTY COMPANY, a Connecticut corporation, Plaintiff-Appellant, v. Rick DUGGAN, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

417 F.3d 1141

FARMINGTON CASUALTY COMPANY, a Connecticut corporation, Plaintiff-Appellant, v. Rick DUGGAN, Defendant-Appellee.

No. 04-1200.

United States Court of Appeals, Tenth Circuit.

August 1, 2005.

Kevin F. Amatuzio, John R. Chase, and Susan Prose, Montgomery, Kolodny, Amatuzio & Dusbabek, L.L.P., Denver, CO, for Plaintiff-Appellant.

Jerre W. Dixon, Dixon and Snow, P.C., Denver, CO, for Defendant-Appellee.

Before HARTZ, McKAY, and McCONNELL, Circuit Judges.

McCONNELL, Circuit Judge.

I.

Without so much as the blast of a shofar, the perimeter masonry block walls of Defendant-Appellee Rick Duggan's partially constructed office building in Golden, Colorado, came tumbling down in a high wind in December 1997. An arbitrator attributed the event primarily to the negligence of the subcontractor, Masonry Designs, which allowed the supportive braces to be removed prematurely and also performed substandard masonry work. The arbitrator ordered Masonry Designs to pay Mr. Duggan over $500,000 in compensation. This turned out to be little comfort when Masonry Designs went out of business. Mr. Duggan had not obtained a performance bond, which is the usual way the owner of a construction project protects itself against losses caused by contractor negligence. Fearing that it would be the next deep pocket, Plaintiff-Appellant Farmington Casualty Company, which had issued Masonry Designs a commercial general liability policy, brought suit against Mr. Duggan seeking a declaratory judgement that its policy did not cover the arbitrator's award against Masonry Designs. Following a bench trial, the district court concluded that Farmington's policy did cover the arbitrator's award. Farmington appeals, and we reverse.

II.

We review de novo the district court's interpretation of the insurance policy. Old Republic Ins. Co. v. Durango Air Serv., Inc., 283 F.3d 1222, 1225 (10th Cir. 2002). We apply Colorado law, interpreting the policy as we think a Colorado court would. Reg'l Bank of Colorado v. St. Paul Fire and Marine Ins. Co., 35 F.3d 494, 496 (10th Cir.1994).

The purpose of a commercial general liability policy is to protect the insured from liability for damages when his own defective work or product damages someone else's property. Hartford Acc. & Indem. Co. v. Pacific Mut. Life Ins. Co., 861 F.2d 250, 253 (10th Cir.1988). Damage to an insured's own work resulting from his faulty workmanship on it is usually covered by a performance bond, not a commercial general liability policy. Id.; see also Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1202 (Colo.Ct.App.2003) (approving conclusion that "finding the breach of a business contract to be a [covered] occurrence would distort the purpose of liability insurance policies"); A.D. Irwin Investments, Inc. v. Great Am. Ins. Co., 28 Colo.App. 570, 475 P.2d 633, (1970) ("[An insurer] d[oes] not, by its contract of liability insurance, become a guarantor of perfect performance."); Lee R. Russ & Thomas F. Segalla, 9 Couch on Insurance § 129:11 (3d ed. 1995 & Supp.2005) ("Most policies of commercial general liability insurance exclude the insured's faulty workmanship from coverage. The rationale for such exclusions is that faulty workmanship is not an insurable `fortuitous event,' but a business risk to be borne by the insured.").

In district court, Farmington pointed to a number of provisions of the commercial general liability policy it sold to Masonry Designs that, it contended, precluded coverage for the collapsed walls. The district court disagreed on all points. On appeal, Farmington reiterates arguments relating to four of the policy's provisions, but in order to prevail, it need only be correct as to any one of them. We therefore address one of Farmington's arguments, which we consider valid, and express no opinion as to the other three.

Section I(A)(1) of the Commercial General Liability Coverage Form (CGLCF) at issue provides coverage for sums the insured becomes legally obligated to pay as damages because of "property damage" caused by an "occurrence." However, the policy does not cover property damage resulting from shoddy work; rather, it excludes from coverage damage to "[t]hat particular part of any property that must be restored, repaired or replaced because `your work' was incorrectly performed on it." Id. § I(A)(2)(j)(6). An exception to this exclusion extends coverage to property damage included in the "products-completed operations hazard," § I(A)(2)(j)(6), but that subsection in turn excludes work that has not yet been completed. Id. § V(11)(a)(2). The end result of this exclusion from an exception to an exclusion is that faulty work is covered as property damage only if the work has been completed. Work is completed "[w]hen all of the work called for in your contract has been completed." Id. § V(11)(b)(1).

The contract between Schubert (the general contractor) and Masonry (a subcontractor) required Masonry not only to build the masonry block walls but also to "clean [the] walls with [a] light acid solution." Aplt.App. 125. The district court found as a fact that only one-third of the acid-washing had been completed when the walls fell. Dist. Ct. Op. 4. Notwithstanding this finding, the district court concluded that, for purposes of the products-completed operations hazard, "[t]he work called for in Masonry Design's contract with Schubert was completed when the walls fell." Id. at 7. Farmington contends this conclusion was in error, and we agree.

The district court offered two justifications for its conclusion. First, the court identified a potential ambiguity in the definition of "your work" as it relates to the...