When it comes to analyzing insurance coverage for contractor liability or construction defects, a lot of courts have as much trouble as someone trying to rub their stomach and pat their head at the same time. So I was glad to see ACUITY v. Burd & Smith Construction, Inc. (N.D. August 24, 2006), which you can see for yourself by clicking this link. As a NoDak-In-Exile (there is no such thing as a former NoDak, only those who wish they could go back and those who don’t yet know that they wish they could go back), it does my heart good to see the North Dakota Supreme Court get it so right.
The case is about a messed-up roofing project on an apartment building that led to a lot of rain water getting in and damaging the building’s interior as well as some personal property of the tenants. A man named Mark Ehley apparently did the work, and there was some question whether Burd & Smith did any work at all and whether Ehley had been acting on behalf of the company. Before all that was resolved at trial, the building owner and Burd & Smith entered into a stipulated judgment for $412,000 and a covenant to enforce the judgment only against Burd & Smith’s Commercial General Liability policy.
Now, you can see the insurer’s arguments coming three miles away, like a dust cloud behind a pickup on a NoDak gravel road in August. First, ACUITY argued that breach of contract claims aren’t within a CGL’s coverage because breaches of contract aren’t accidents. As the court pointed out, however, it isn’t the label on a claim that determines coverage, it’s what the policy says. It is generally accepted that a CGL does not cover replacement of a contractor’s defective work, except possibly if it must be torn out to repair other damage, but does cover damage to other property caused by the defective work, even if that other damage is called a breach of contract. The court also dispensed with arguments about the "assumed contract" and "damage to property." I’m not going to go into them at length, but the court had a nice, short analysis of each that makes for good reading. The court found the policy covered the damages to the extent they were for damage to parts of the building other than the roof, but did not cover repair costs to the roof itself. Sounds right to me.
(Thanks to a Friend of the Blog for tipping me off to this case).