Eighth Circuit Holds Claim Against General Contractor Not an Occurrence

In its recent decision in Secura Ins. v. Horizon Plumbing, 2012 U.S. App. LEXIS 4477 (8^th Cir. Mar. 5, 2012), the United States Court of Appeals for the Eighth Circuit, applying Missouri law, considered whether an underlying breach of contract claim could be construed as an “occurrence” triggering coverage under a general liability policy.

The claims at issue in Secura arose out of the construction of an apartment complex in Kansas City, Missouri.  The owner, Metropolitan, hired Weitz Company as the project’s general contractor, and Weitz, in turn, hired Horizon Plumbing as the plumbing subcontractor.  The project ran into financial troubles and delays, which ultimately resulted in Metropolitan terminating Weitz.  Weitz later sued Metropolitan for breach of contract. Metropolitan asserted a counterclaim against Weitz, alleging that Weitz committed numerous breaches of contract, including failure to timely complete the project, failure to provide progress reports, failure to supervise and pay subcontractors in a timely fashion, failure to maintain adequate accounting records, and failure to correct deficient and defective work.  Weitz and Metropolitan both asserted third-party claims against Horizon for defective plumbing.  Among other things, they alleged that Horizon failed to properly connect various balcony drains, which allowed for water intrusion and mold.  Horizon’s insurers defended and ultimately settled these third-party claims.

At issue in Secura was whether Weitz, as an additional insured under Horizon’s policies, was entitled to coverage with respect to Metropolitan’s counterclaim.   Metropolitan was awarded $5 million in connection with its counterclaim, and the court ordered Horizon to pay Weitz $115,619.80 in attorneys’ fees and $12,576.30 in costs, these amounts be described as the portion of Weitz’s defense of the counterclaim arising out of Horizon’s allegedly defective plumbing work.  Horizon’s insurers paid this amount.  Weitz claimed subsequently claimed that as an additional insured under Horizon’s policy, it was entitled to reimbursement of the entirety of its costs in defending Metropolitan’s counterclaim – an amount approximating an additional $1.1 million.  Horizon’s insurers took the position that no coverage obligation was owed with respect to the remainder of the counterclaim because it did not allege “property damage” resulting from an “occurrence.”

Weitz argued that Metropolitan’s breach of contract counterclaim triggered coverage because it sought damages for, among other things, Horizon’s defective plumbing.  The court disagreed, finding that each of Weitz’s alleged failures “was within [its] control and management and its failure to perform cannot be described as an undesigned or unexpected event” and thus did not constitute an “occurrence.”  Moreover, the court rejected Weitz’s argument that the claim for failure to repair constituted an occurrence, explaining that:

Contrary to Weitz's contention, the disclosure of damages sought for failure to remediate defective workmanship was not based on an "occurrence" but rather a breach of a specific contractual duty to correct deficient work. There was no allegation of an accident or that Weitz's conduct had caused property damage. The fact that Weitz's failure to correct the defective workmanship resulted in financial expenses to Metropolitan was a "normal, expected consequence of [Weitz's] breach of contract and not an occurrence."

In passing, the court noted that while an additional insured is entitled to a defense, an insurer’s coverage obligation to an additional insured is limited to damages arising out of the named insured’s work.  Horizon’s insurers, explained the court, should not be required to provide a full defense merely because Metropolitan’s counterclaim included a small component related to Horizon’s work.  As the court concluded, “the insurers have already paid Weitz for all defense costs related to Horizon's work and they owe nothing more.”