Greystone and Insurance Coverage for "get To" and "rip and Tear" Expenses
| Jurisdiction | United States,Federal,Colorado |
| Citation | Vol. 41 No. 3 Pg. 69 |
| Pages | 69 |
| Publication year | 2012 |
2012, March, Pg. 69. Greystone and Insurance Coverage for "Get To" and "Rip and Tear" Expenses
March 2012
Vol. 41, No. 3 [Page69]
Tort and Insurance Law articles provide information concerning current tort law issues and insurance issues addressed by practitioners representing either plaintiffs or defendants in tort cases. They also address issues of insurance coverage, regulation, and bad faith.
Coordinating Editor
William P. Godsman of the Law Office of William Godsman, Denver-(303) 455-6900, wgodsman@qwestoffice.net
About the Author
Ronald M. Sandgrund is of counsel with the Denver law firm Sullan,2 Sandgrund, Perczak and Nuss P.C.-rsandgrund@vsss.com. Associate attorney Leslie A. Tuft helped research and edit this article. The firm represents commercial and residential property owners, homeowner associations, and unit owners in construction defect and insurance coverage disputes. Sandgrund and Tuft have filed several amicus briefs from policyholders' perspectives in coverage disputes.
This article discusses the 2011 Tenth Circuit Court of Appeals Greystone Construction Inc. v. National Fire and Marine Insurance Co. decision and the related issue of liability coverage for what are commonly referred to as "get to" or "rip and tear" expenses-that is, coverage for the cost of repairing or replacing defective or nondefective construction work that is damaged or destroyed due to effecting repairs to other work that has sustained covered property damage.
The Greystone Construction Inc. v. National Fire and Marine Insurance Co.(fn1)case involved the question of whether liability insurance coverage exists for property damage to an insured construction professional's work arising from the insured's or its subcontractor's negligent construction. In the 2009 Greystone I case,(fn2) the U.S. District Court for the District of Colorado, relying on the Colorado Court of Appeals decision in General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co. (General Security)(fn3) held that defective construction that damages only the insured's work is not an accidental occurrence and, thus, is not covered under the standard form post-1986 commercial general liability (CGL) insurance policy.
In Greystone II,(fn4) the Tenth Circuit Court of Appeals reversed and remanded Greystone I, predicting that the Colorado Supreme Court would hold that negligent construction constitutes an accidental occurrence if the resulting property damage to the insured's work was not intended or expected by the insured. The court qualified its ruling by holding that CGL policies provide coverage for the cost of repairing resulting damage to the insured's nondefective work, but not for damages awarded for the cost of repairing the defective work itself.(fn5) As discussed below, if the court's qualification was intended only to hold that the cost of repairing defective work that had not itself sustained property damage was not covered, it is more comfortably harmonized with the rest of the court's opinion.
Greystone Facts, Procedural Posture,
and District Court Ruling
In Greystone I, two home builders and their liability insurer sued a second insurer who insured the same builders under later-issued polices. They sought reimbursement of part of the builders' and the first insurer's defense costs and settlements paid to the homeowner-claimants in two underlying construction defect lawsuits.(fn6) The second insurer had refused to contribute to the defense or settlement of either case. The parties stipulated that the underlying construction defects consisted of defective foundation systems built atop expansive soils and inadequate grading and drainage systems.(fn7)
On cross-motions for summary judgment, relying on General Security's definition of "occurrence," which included the undefined term "accident," the district court held that because the underlying lawsuits "focused only on poor workmanship, and the stipulated facts yield no indication of property or consequential damage to anything other than [the insured's] work product (i.e., the home) itself," neither lawsuit, on its face, involved "an 'occurrence' under the terms of the policy, and thus, National Fire had neither the duty to defend nor indemnify. . . ."(fn8) The district court did not consider coverage for the underlying negligent repair and misrepresentation claims because the arguments regarding these issues were "inadequately developed."(fn9)
Appeal and Intervening Statutory Changes
During pendency of the Greystone I appeal, Colorado's General Assembly passed House Bill (HB) 10-1394, codified at CRS §§ 10-4-110.4 and 13-20-808. Among other things, HB 10-1394 provides courts guidance when interpreting liability policies issued to construction professionals. HB 10-1394 directs courts to presume that a construction professional's defective work that results in property damage, including damage to the construction professional's work itself, is an accident, unless the construction professional intended and expected the resulting damage.(fn10)
In light of this new law, the importance of the insurance issues presented, and an apparent conflict among Colorado appellate decisions, the Tenth Circuit Court of Appeals certified the following question to the Colorado Supreme Court: "Is damage to non-defective portions of a structure caused by conditions resulting from a subcontractor's defective work product a covered 'occurrence' under Colorado law?"(fn11) The Colorado Supreme Court declined to consider the certified question.(fn12)
Tenth Circuit's Main Holdings
The Tenth Circuit Court of Appeals made two important holdings. First, the court noted that HB 10-1394 would "settle this appeal" and require coverage if applicable, but held that the new law was not intended to apply retroactively to the liability insurance policies at issue because the policy periods expired before HB 10-1394's May 21, 2010 effective date.(fn13) Colorado district courts have divided on the question of the law's retroactivity, and the issue is pending before the Colorado Court of Appeals.(fn14)
Second, the court held, "We predict the Colorado Supreme Court would construe the term 'occurrence,' as contained in standard-form CGL policies, to encompass unforeseeable damage to nondefective property arising from faulty workmanship."(fn15) In so holding, the court noted that:
most federal circuit and state supreme court cases line up in favor of finding an occurrence in the circumstances we consider here" evidencing "a strong recent trend in the case law interpret[ing] the term 'occurrence' to encompass unanticipated damage to nondefective property resulting from poor workmanship.(fn16)
To determine what constitutes an unanticipated or unforeseeable injury, the court relied on the Colorado Supreme Court's earlier interpretation of "occurrence," which held that the term "occurrence" excludes from coverage only "'those damages that the insured knew would flow directly and immediately from its intentional act.'"(fn17) Thus, the Tenth Circuit reversed the federal district court's summary judgment and remanded the case for further proceedings, including consideration of potentially applicable policy exclusions and conditions not considered during the original summary judgment analysis.
Tenth Circuit Ancillary Holding-
Damage to Defective Versus Nondefective Work
In an ancillary holding, the Tenth Circuit held that "injuries flowing from improper or faulty workmanship constitute an occurrence so long as the resulting damage is to nondefective property, and is caused without expectation or foresight."(fn18) The court further explained that "nondefective property is property that has been damaged as a result of poor workmanship."(fn19) Construction professionals and injured property owners are likely to argue in Colorado state court that the Tenth Circuit's distinction between property damage to defective versus nondefective work conflicts with several premises underlying that court's main holding, was unnecessary, and may raise questions of whether coverage applies to the cost of removing and replacing defective work to repair resulting damage to other work. Analysis follows of the court's rationale for its holding, construction professionals' expected criticism of the court's ancillary holding, and the insurance industry's likely rebuttal to this criticism and disagreement with the court's holding regarding the scope of an accident.
Implicit Versus Explicit Exclusions
and the Policy's Plain Language
The main holding of Greystone II rests primarily on...
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