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Rocky Mountain Prestress, LLC v. Liberty Mutual Fire Insurance Company.

No. 19-1169. D.Colo. Judge Hartz. Builder’s Risk Insurance Policy Coverage—Insurance Policy Interpretation—Defective Workmanship Exclusion—Resulting Loss Exception.

June 1, 2020

Plaintiff was a precast concrete subcontractor on an office building construction project. The owner of the property on which the construction took place purchased a builder’s risk insurance policy (the policy) from Liberty Mutual Fire Insurance Company (Liberty). The policy had a defective workmanship exclusion, which eliminated coverage for loss or damage in connection with an act, defect, error, or omission related to design, specifications, construction, materials, or workmanship. After an engineering firm engaged by plaintiff identified defects in its work, plaintiff sought coverage under the policy for the cost of repairing its faulty work. Liberty began investigating plaintiff’s claim. Plaintiff then filed a lawsuit against Liberty in state court for breach of contract and extra-contractual claims.

Liberty removed the action to federal court based on diversity jurisdiction. Following written discovery, Liberty moved for summary judgment and the district court granted the motion, concluding that the defective workmanship exclusion applied to the work at issue.

Plaintiff contended on appeal that the policy’s resulting loss exception to the exclusion applied. The exception provides that if an act, defect, error, or omission as described in the exclusion results in a covered peril, Liberty will cover the loss or damage caused by that covered peril. Plaintiff argued that this language was circular, inconsistent, and ambiguous in connection with the defective workmanship exception and thus should be construed against the insurer. The Tenth Circuit examined case law from other jurisdictions construing similar provisions and concluded that the resulting loss exception here functions to restore coverage only when an excluded peril leads to loss from an independent non-excluded peril. In other words, coverage may be extended to other property damage that results from defective workmanship, but not to the defective workmanship itself. Any other interpretation would render the exclusion clause superfluous by permitting the exception to swallow the exclusion. Here, based on the undisputed facts, there was no information to suggest that the damage resulted from another cause. Accordingly, the claimed loss unambiguously falls within the policy’s defective workmanship exclusion, and the policy’s resulting loss exception does not restore coverage for this expressly excluded cause.

Plaintiff also argued that if it did not present sufficient evidence of resulting damage to other parts of the project, this was because it did not have a sufficient opportunity for discovery before the district court granted summary judgment. This argument failed because plaintiff did not invoke Fed. R. Civ. P. 56(d) to seek additional time for discovery below.

The summary judgment was affirmed.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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