Wednesday, February 3, 2010
The one bright part of Judge Brimmer's order, from a coverage perspective, is that he did acknowledge and discuss the exception to the General Security case. In doing so, Judge Brimmer stated: "General Security’s exception for 'additional or consequential property damage,' focuses first on the object of the work involved and second on whether there also was damage to something other than the object of such work. In other words, to fall within the consequential-damage exception, the damage must be to something other than the work product itself." Order, at pg. 11.
This discussion highlights the importance of pleading into coverage by being very specific, in complaints alleging construction defects, about alleging consequential damage to something other than the work product itself. This applies equally to homeowners suing a general contractor or developer for construction defects and to general contractors or developers suing subcontractors, material suppliers, and design professionals for construction defects.
Stay tuned as this appears to be an ongoing saga. We anticipate that the U.S. District Court for the District of Colorado will certify one or more questions from the Greystone case to the Colorado Supreme Court for determination. If and when the Colorado Supreme Court speaks to the issue, we may finally have some direction in Colorado regarding whether there is coverage for construction defects in Colorado. At the same time, it remains to be seen whether homeowners and/or construction professionals turn to the Colorado State Legislature for a legislative solution to the problem of disappearing coverage in Colorado.
What puzzles me is how or why the January 29, 1979 ISO circular, meant to explain broad form property damage coverage, has been lost in the shuffle. By the very document used by ISO to explain the coverage available under these policies: 1) an insured should have coverage for damage to his work arising out of a subcontractor's work; 2) an insured should have coverage for damage to a subcontractor's work arising out of the subcontractor's work; and 3) the insured should have coverage for damage to a subcontractor's work, or if the insured is a subcontractor to a general contractor's work or another subcontractor's work, arising out of the insured's work. The only thing that should not be covered, according to this early ISO explanation, is damage to an insured's work arising out of his work.