Chapter 6 - § 6.4 • THE COMMERCIAL GENERAL LIABILITY INSURANCE POLICY
| Jurisdiction | Colorado |
§ 6.4.1-Overview
First known as a "comprehensive general liability policy," a commercial general liability insurance policy is "[a] standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability."83
The vast majority of CGL policies derive from a "standard form" insurance policy designed to be used by many different insurers and containing identical provisions, regardless of the insurer issuing the policy.84 However, standard form policies often include "endorsements," which are attachments to the standard form that modify the policy provisions by restricting or broadening the scope of coverage or that clarify coverage pertaining to a specific loss exposure. When a specific policy and its endorsements vary from the standard form language, the terms of the specific policy control, and treatises and authorities on form policies provide little interpretive guidance.
§ 6.4.2-Standard Coverages
Typically, CGL policies in a construction setting insure against:
1) Bodily injury and property damage, i.e., physical damage to a person or thing;
2) Personal injury and advertising injury damage, i.e., injury resulting from certain business activities, which results in claims for defamation, malicious prosecution, and invasion of privacy; and
3) Medical expenses, i.e., medical expenses resulting from a bodily injury, whether or not the insured person is liable for the injury.
These coverages are explained in more detail below.
Bodily Injury and Property Damage Coverage
"A policy is triggered when a threshold event implicates its coverage. A policy that has not been triggered does not provide any coverage, while a policy that has been triggered may or may not provide coverage, depending on the circumstances of the case."85
Ordinarily, bodily injury and property damage coverage requires two things to trigger coverage: (1) an occurrence and (2) damages. Very little construction project litigation involves the definition or requirement of "bodily injury"; a great deal of it involves the definition or requirement of "property damage."
Requirement of Damage
CGL policies typically define property damage variously as "physical injury to tangible property, including all resulting loss of use of that property," or "[l]oss of use of tangible property that is not physically injured."86
Ordinarily, there must be harm to physical, tangible property to trigger CGL property damage coverage. "Tangible property is that which is capable of being handled, touched, or physically possessed."87 However, the definition of property damage also includes loss of use of property that has not been physically injured, so a claim by an owner against a contractor for the loss of use of undamaged property could also be covered under a CGL policy.
"Property damage" does not ordinarily include purely economic harm, but it does not necessarily exclude it either. In Hommel v. George, investors in a condominium project argued that a general contractor's failure to complete the project resulted in the loss of their investment because they were unable to "use" the condominium project. The Colorado Court of Appeals held that the investors did not lose the "use" of the condominium project since they neither owned nor occupied the condominiums; rather, the investors lost the chance to recoup their investment. That intangible loss did not constitute property damage or loss of use of property under the policy.88 However, in Cyprus Amax Minerals Co. v. Lexington Insurance Co., discussed in more detail below, the Colorado Supreme Court observed that liability for property damage can include a "mix" of other kinds of damages, including economic damages.89
Inherent in the concept of property damage is the assumption that the damaged property belongs to, or is the work of, someone other than the policy holder. In Colorado, there is no coverage for a contractor's claim for indemnification of losses associated with repairing or replacing its improperly constructed structure, but where the defective workmanship damages property or work of third parties, that consequential damage is covered.90
Requirement of an Occurrence, Accident, or Event During the Policy Period
CGL policies require an event or an occurrence, which is generally defined as an "accident." CGL policies do not ordinarily define the term "accident," but case law defines it as an "unanticipated or unusual result flowing from a commonplace cause."91 The term "occurrence" is to be broadly construed against the insurer.92 An occurrence alone is not enough; third parties seeking damages under a CGL policy must have "'some legally recognizable injury to their interests during the policy period in order to recover.'"93 A case in point is Globe Indemnity Co. v. Travelers Indemnity Co. of Illinois, which involved determining which of a series of CGL policies was required to insure damages arising from a landslide.94 The Colorado Court of Appeals affirmed summary judgment in favor of those insurers whose policies predated the landslide, notwithstanding the argument that the landslide was the culmination of ongoing geological processes.
In Browder v. U.S. Fidelity & Guaranty Co., the Colorado Supreme Court held that, for an "occurrence" to fall within a policy period, the insured "must have some legally recognizable injury to their interests during the policy period in order to recover."95 The court in Browder found no coverage because, there, the plaintiffs had not purchased the property in question until after the defendant insurer's policy had expired.96 Nor could the Browder plaintiffs have been subrogated to the previous owners' claims, because the previous owners' claims were barred by the "owned property" exclusion.97
To the extent that Browder barred recovery under an expired policy to claimants solely because they had purchased a property after the policy expired, it was overruled in Hoang v. Assurance Co. of America.98 In Hoang, the Colorado Supreme Court held that occurrence policies provided coverage for all covered damage that occurred during the policy period, barring any exclusion to the contrary.99
Similarly, in Bainbridge, Inc. v. Travelers Casualty Co. of Connecticut, the Colorado Court of Appeals found that subsequent owners who purchased damaged property after the expiration of an insurer's policy could, under the doctrine of equitable subrogation, assert a claim against the insurer for the expired policy where (1) the previous owners could have asserted a claim against the insured under the expired policy, and (2) the subsequent owners purchased the property at a price that was not discounted for the damage.100
Colorado has been among the leading states to address whether construction defect claims can ever constitute an occurrence under a commercial general liability policy. As discussed in § 6.1.3, the General Security decision made it unlikely that construction defect claims could constitute an occurrence. In response to that decision, the Colorado legislature passed C.R.S. § 13-20-808. The statute establishes that "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."101 Although the legislature intended the statute to apply to all insurance policies in existence or issued on or after the effective date of the Act, courts have refused to apply the statute to insurance policies in existence prior to the statute.102
For policies that were in existence prior to the effective date of the Act, the occurrence question has also been modified by recent cases. First, the Colorado Court of Appeals in Colorado Pool Systems v. Scottsdale Insurance Co., after refusing to apply C.R.S. § 13-20-808 retrospectively, nonetheless concluded that damage to non-defective property caused by construction defects is an occurrence under a general liability policy.103 Additionally, based on Colorado Pool Systems, Colorado has joined the majority of states in finding that rip and tear damages (i.e., damages to non-defective property that result from repairing defective work, such as repairing a non-defective wall that was ripped out in order to get access to and repair defective pipes) are covered under a CGL policy.104 Likewise, in Greystone Construction, Inc. v. National Fire & Marine Insurance Co., the Tenth Circuit reversed the trial court's ruling and predicted that the Colorado Supreme Court would construe the term "occurrence," as contained in CGL policies, to encompass unforeseeable damage to non-defective property arising from faulty workmanship.105
When an accident causes physical damage, there may be insurance coverage even when a complaint does not include a "property damage" claim and the insured's legal liability is not obviously related to compensable property damage. Since the Hecla Mining case, it has become a well-settled principle of law that where no duty to defend exists, there is no duty to indemnify. Careful practitioners must be aware that courts may, somewhat mechanically, rely on this principle to mistakenly find that if the complaint contains no allegations that implicate a duty to defend, there cannot be a duty to indemnify. However, in Cyprus Amax Minerals Co. v. Lexington Insurance Co.,106 the Colorado Supreme Court cautioned that the "four corners" rule was designed to cast a broad net in favor of finding a duty to defend; thus, it should not be interpreted in a way that narrows coverage when applied to the duty to indemnify. Cyprus arose from a landslide that rendered unusable a mine that Cyprus, the insured, sold to a third party. The third...
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