Applying Montana law, the federal district court found that the insurer owed a defense for faulty workmanship claims against the insured contractor. Atlantic Cas. Ins. Co. v. Quinn, 2019 U.S. Dist. LEXIS 103566 (D. Mont. June 20, 2019).
The Quinns contracted with Brunner Homes and Construction to build a custom home. The contract required Brunner to complete the home 300 days after work commenced. Otherwise, Brunner would be responsible for 0.5% of the contract price for every day beyond that date that the home remained unfinished.
On September 25, 2017, the Quinns sued Brunner for negligence, breach of contract, and construction default, among other things. The Quinns sought $3,728.45 per day for each day past the completion date, or $2,624,828.
Atlantic agreed to defend under a reservation of rights, but sued seeking a declaration that it had no duty to defend or indemnify.
Under Montana law, faulty workmanship could be an occurrence if the consequences were not objectively intended or expected by the insured, notwithstanding the work was intentional. The records was sparse regarding Brunner’s alleged faulty workmanship. The Quinns’ complaint alleged construction issues with the roof, concrete, the decks, drywall, plumbing, framing, trim work, paint, windows, doors, tile, venting, leaking and cracking, resulting in water damage, water stains, destruction of personal property, stained floors, and other damage to tangible property.
Atlantic did not present any evidence that Brunner intended or expected these damages. Therefore, factual development was needed to determine whether Brunner’s alleged faulty workmanship was a covered occurrence.
Atlantic argued that even if the alleged faulty workmanship was an occurrence, the resulting property damage was not covered because of Exclusion 2 (j) (6). The exclusion removed from coverage “property damage” to property “that must be restored, repaired or replaced because your work was incorrectly performed on it.” However, the products-completed operations hazard restored coverage for property damage that occurred after the work was completed. Atlantic argued that the products-completed operations hazard was inapplicable because the Quinns’ home was not completed, but the record suggested otherwise. Specifically, the Quinns’ discovery requests indicated that they took occupancy of the home, putting it “to its intended use.” The record was unclear as to when the alleged property damage occurred. Accordingly, summary judgment on Atlantic’s duty to indemnify was improper. But because coverage was a possibility, Atlantic had a duty to defend against the claims in the underlying complaint.
The liquidated damages accruing at 0.5% of the home price per day were not covered and Atlantic had no duty to indemnify for those damages. Whether Atlantic had a duty to indemnify for the remaining breach of contract claims could not be determined as a matter of law at this time.