Recent Colorado Court of Appeals opinion holds that poor workmanship, standing alone, is not an “accident” triggering liability insurance coverage, despite a 10th Circuit Court of Appeals case to the contrary.

The intersection of construction law and insurance is a complicated area, presenting questions on which even courts cannot agree.  TCD, Inc. v. American Family Mutual Insurance Company (April, 2012), the most recent Colorado State case to address issues in that area, appears to put Colorado State courts at odds with their 10th Circuit counterparts.

TCD arises out of a construction project in Frisco, Colorado. The developer, Frisco Gateway Center, LLC (Gateway), entered into a contract with TCD, Inc., the general contractor, to construct a building. TCD entered into a subcontract with Petra Roofing and Remodeling Company (Petra) to install the roof. The subcontract required Petra to “indemnify, hold harmless, and defend” TCD against claims arising out of or resulting from the performance of Petra’s work on the project. The subcontract also required Petra to name TCD as an additional insured on its Commercial General Liability (“CGL”) policy in connection with Petra’s work under the subcontract. American Family Mutual Insurance Company (“AmFam”) issued a CGL policy to Petra, with TCD named as an additional insured.

TCD sued Gateway over performance and payment issues and Gateway asserted counterclaims against TCD.  TCD demanded that AmFam defend and indemnify it in the underlying action, but the insurance company denied coverage.  TCD filed suit against Petra and AmFam, the trial court concluding that the counterclaims asserted by Gateway against TCD did not give rise to an obligation to defend or indemnify under the CGL policy. 

The Court, in affirming the trial court’s ruling, quoted General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., a 2009 Colorado Court of Appeals opinion finding that “a claim for damages arising from poor workmanship, standing alone, does not allege an accident that constitutes a covered occurrence, regardless of the underlying legal theory pled.”  The Court relied upon General Security despite the fact that the 10th Circuit Court of Appeals in Greystone Construction, Inc., v. National Fire & Marine Insurance Company (November, 2011), concluded that General Security was incorrectly decided on this point (Greystone held that unanticipated damage to an insured’s own work does in fact constitute an “occurrence”).  Despite its apparent disagreement with the Federal Court on the above point, the Court nevertheless relied on Greystone for the proposition that § 13–20–808, the Colorado statute explicitly stating that property damage constitutes an accident, does not apply retroactively.

Thus the law surrounding what constitutes an accident under a CGL appears to be in a state of uncertainty as between Colorado State and Federal courts: in cases where insurance policy coverage periods expired before May 21, 2010, the effective date of § 13–20–808, Colorado state courts will continue to be bound by the Court of Appeals decision in General Security (claims of defective workmanship, standing alone, do not constitute an “occurrence”), whereas federal courts will be bound by Greystone (unanticipated damaged to an insured’s own work constitutes an “occurrence”).  Thus, until the Colorado Supreme Court addresses the issue, disparate interpretations of the law are likely to impact construction defect litigation cases.