DAMAGE FROM LEAKY WINDOWS COVERED UNDER CONTRACTOR'S POLICY

Commercial General Liability	Subcontractor Exception
Faulty Workmanship Exclusion	Damages Resulting From Faulty Workmanship

Hilcom Partners, Ltd. (Hilcom) filed a demand for arbitration against Moore & Associates, Inc. (Moore), seeking damages of more than $5,000,000 due to alleged construction and design defects, especially for poorly and negligently designed and installed windows that allowed water penetration, mold and other damage to building components and fixtures. Moore had a two-part contract with Hitcom as the design and build contractor on its new hotel. Moore retained multiple subcontractors for the project, including one to design portions of the hotel and another to construct and install the windows.

Moore tendered defense of the arbitration to Travelers Indemnity Company of America (Travelers) its commercial general liability carrier. Travelers did not believe it had liability and reserved its right to disclaim any duty to defend or indemnify Moore and agreed to defend Moore only with the reservation of rights. In July 2003, Travelers sought a declaration that it had no duty to defend or indemnify Moore.

Travelers moved for summary judgment on the same matter based on there being no coverage. Moore also motioned for summary judgment. The trial court ordered Travelers to defend Moore but reserved ruling on the duty to indemnify Moore for damages paid to Hilcom connected with the arbitration settlement until the arbitration proceeding concluded. Travelers appealed.

Travelers argued that it had no duty to defend because Hilcom sought only to recover damages incurred as a result of correcting Moore's defective work. Because Moore had been the design-builder for the entire hotel, of the entire hotel was Moore's work product.

The appellate court reviewed the policy definitions and found that faulty workmanship alone was not covered but that faulty workmanship that causes an accident is. The damages to Hilcom were not limited to only the defective work. The water and moisture penetration resulting from the defective work caused extensive damage to other components of the interior and exterior wall structure and also the furnishings and fixtures inside the building. This demonstrated property damage within the coverage provision of the policy. Because there was an occurrence within the meaning of the policy, coverage existed for damage to property other than that which was the work of the contractor.

The appellate court held that, once property damage to property other than the defective work of the contractor triggered coverage as an occurrence under the insuring agreement, the subcontractor exception to the your work exclusion was triggered. This resulted in providing coverage to Moore for the repair and replacement of the defective work by a subcontractor. The court ruled that the granting of summary judgment only on the issue of the duty to defend Moore in Hilcom's demand for arbitration by the trial court was sound. It also found reserving of judgment on the issue of the duty to indemnify for damages until the conclusion of the arbitration to be sound.

The trial court conclusions were affirmed in all respects and the costs of the appeal were assessed against Travelers.

The Travelers Indemnity Company of America, et al., Appellants, v. Moore & Associates, Inc., Appellee. Tennessee Court of Appeals. No. M2004-01233-COA-R3-CV. Filed September 20, 2005. Appeal from the Chancery Court, Sumner County. Affirmed. 2005 CCH Personal and Commercial Liability Cases. Paragraph 8,134.