The
recently decided case of Colorado Pool Systems, Inc. v. Scottsdale Insurance
Company (Colo. Ct. App. 10CA2638, October 25, 2012), confirms that absent
specific exclusions in the policy, a commercial general liability (“CGL”)
policy covers damages to non-defective property arising from a builder’s own
defective workmanship.
Colorado
Pool Systems, Inc. (“Colorado Pool”) was hired as a subcontractor to install a
swimming pool at Founders Village Pool and Community Center (“Founders
Village”) in Castle Rock, Colorado.
After the concrete shell of the pool was placed, some of the rebar frame
was found to be too close to the surface.
Founders Village demanded that Colorado Pool remove and replace the pool,
and Colorado Pool contacted its insurance carrier, Scottsdale Insurance Company
(“Scottsdale”), with which Colorado Pool held a CGL policy. After inspecting the pool, Scottsdale’s
claims adjuster stated that the insurance policy would cover losses associated
with removing and replacing the pool.
Relying
on the claim adjuster’s statement, Colorado Pool paid for the demolition of the
pool’s concrete shell. After demolition
was complete, however, Scottsdale refused to pay for the demolition or for the
cost of replacing the pool, and denied all coverage under the CGL policy. Colorado Pool, after paying damages to the
general contractor for the pool project, filed suit against Scottsdale
asserting that Scottsdale had a duty to defend and indemnify Colorado Pool
pursuant to the applicable CGL policy.
The trial court found that the CGL policy did not cover Colorado Pool’s
claimed damages, and Colorado Pool appealed.
The
Court of Appeals first addressed whether the Builders Insurance Act, C.R.S. §
13-20-808, applied to Colorado Pool’s claims.
The Court found that while the Act was intended to apply retroactively,
such an application to Colorado Pool’s CGL policy would be impermissibly retrospective because it would change
the coverage under the policy that the parties had originally bargained
for.
The
Court, therefore, interpreted the CGL policy and the term “accident” in the
policy under the common law, and adopted the test from Greystone
Construction, 661 F.3d 1272 (10th Cir. 2011). Applying the Greystone test, the Court
held that coverage exists under a CGL policy for damages arising from improper
or faulty workmanship if those damages are not specifically excluded in the
policy, if non-defective property is damaged, and if the damage was unforeseen
and unexpected. For Colorado Pool, that meant that Scottsdale
did not have to pay for removing and replacing the pool, since Colorado Pool
was obligated to replace its own defective work product. Related damage to a non-defective deck,
sidewalk, retaining wall, and electrical conduits, however, were covered under
the CGL policy, because such damages were not specifically excluded, the
property was not defective, and Colorado Pool did not expect or foresee the
damage.

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