Exclusions Precluded Coverage for Construction Defect Lawsuit against General Contractor, Ninth Circuit Decides

April 21, 2017 | Insurance Coverage

The U.S. Court of Appeals for the Ninth Circuit has affirmed a decision by a federal district court in California that two policy exclusions precluded coverage for a construction defect lawsuit brought against the insured general contractor.

The Case

Archer Western Contractors, Ltd., was the general contractor for the San Diego County Water Authority’s emergency water storage project. After settling a construction defect lawsuit brought against it by the authority, Archer filed an action against one of its insurers, alleging that it had improperly failed to indemnify portions of Archer’s settlement obligations.

The U.S. District Court for the Central District of California determined that two exclusions – one that precluded coverage for property damage to “that particular part of real property on which [the contractor] . . . [is] performing operations, if the Property Damage arises out of those operations” and a second that precluded coverage for property damage to “that particular part of any property that must be restored, repaired, or replaced because [the contractor’s] Work was incorrectly performed on it” – barred coverage for the authority’s construction defect claims against Archer. The district court granted summary judgment in favor of the insurer.

Archer appealed to the Ninth Circuit.

The Ninth Circuit’s Decision

The circuit court affirmed.

In its decision, the Ninth Circuit explained that the property damage alleged by the authority was to the pump house and turbine generators, “discrete portions of the property for which [Archer] was partially if not fully responsible.” The damage, the circuit court added, “flowed from its allegedly defective work on the property.”

Therefore, the circuit court said, it agreed with the district court that the two exclusions precluded coverage, and it concluded that summary judgment had properly been entered in favor of the insurer.

The case is Archer Western Contractors, Ltd. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 15-55648 (9th Cir. March 2, 2017).

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