10th Cir. Rejects Insurer’s Attempt to Avoid Coverage For Window Defect Claims Based On Faulty Workmanship.

The Tenth Circuit, applying Utah law, agreed with the lower court that Cincinnati Insurance Co. (“Cincinnati”) has a duty to defend AMSCO Windows (“AMSCO”) in litigation concerning its manufactured windows, but not for pre-litigation proceedings brought by homeowners under a Nevada statute because they are not “suits” under the policies.

AMSCO manufactured windows that were sold by J&L Windows Inc. and installed by contractors in new homes in Nevada. Homeowners subsequently filed claims against the contractors who built their homes, alleging that defective window products and their improper installation caused property damage. The contractors asserted claims against J&L, who in turn asserted claims against AMSCO. Some of the homeowners brought claims under Nevada’s Chapter 40 statute, which requires a claimant to send written notice to a contractor before bringing a construction defect suit, giving the contractor an opportunity to inspect the home and repair any damage. If there is no resolution after the pre-litigation proceedings, the claims can proceed to Nevada state court.

AMSCO tendered its defense of the homeowners’ claims to Cincinnati.  Cincinnati refused to defend and instead filed suit seeking a declaration that it had no duty to defend AMSCO against the construction defect claims, because the alleged property damage was caused “by the natural results of faulty workmanship” and, therefore, Utah law does not implicate a covered “occurrence.” The district court ruled that Cincinnati had a duty to defend the homeowner claims in the litigation because, “where defective workmanship causes damage to property other than the work product itself … such damage results form an accidental ‘occurrence’ within the meaning of CGL policy language.”

The Tenth Circuit upheld the district court’s ruling.  The court found that the claims constituted occurrences because (1) the homeowners asserted that the defective windows manufactured by AMSCO “caused property damage to the interior and / or exterior of the house beyond the window defects themselves; and (2) the damage was foreseeable, but not expected or intended.

The Tenth Circuit also upheld the district court’s ruling that Cincinnati did not have a duty to defend the pre-litigation proceedings. Cincinnati’s duty to defend AMSCO under the policies extended only to “suits,” which are defined as “civil proceeding[s] in which money damages because of … ‘property damage’ … to which this insurance applies are alleged.” The Tenth Circuit found the pre-litigation proceedings did not constitute “suits” because they do not result in any adverse judgment or obligation. Cincinnati Ins. Co. v. AMSCO Windows, No. 13-4155 and 13-4159 (10^th Cir. Nov. 26, 2014).