Secura Ins. v. Horizon Plumbing, Inc. (8th Cir. (Mo.) Mar. 5, 2012)
The Eighth Circuit recently held that a general contractor was not entitled to insurance coverage in a case arising from its alleged breach of a construction contract. The Eighth Circuit held that damages arising from an insured’s breach of contract, including failure to correct defective work, are not accidental and, therefore, do not arise from an “occurrence.”
MH Metropolitan LLC (“Metropolitan”) hired Weitz Company LLC (“Weitz”) as the general contractor on a project to build an apartment complex in Kansas City, Missouri. Weitz subcontracted the plumbing work to Horizon Plumbing, Inc. (“Horizon”). After a variety of problems, Weitz stopped work on the project. Metropolitan then fired Weitz, but had Horizon continue with the plumbing work. It was later discovered that Horizon failed to connect two fourth floor balcony drains and, as a result, that moisture had entered the building and caused mold growth and flooding.
Weitz sued Metropolitan for breach of contract, alleging that Metropolitan had improperly terminated it from the project and failed to pay all sums due to it. Metropolitan counterclaimed for breach of contract, alleging that Weitz failed to timely complete the project, failed to provide progress reports, failed to supervise, coordinate, and pay subcontractors timely, failed to maintain adequate accounting records, and failed to correct deficient and defective work. Both Metropolitan and Weitz sued Horizon for the allegedly defective plumbing.
Weitz tendered its defense and indemnity for the Metropolitan counterclaim to Horizon’s insurers, contending that it qualified as an additional insured under the policies. After a trial on Weitz’s and Metropolitan’s claims, the court ordered Horizon to pay Weitz $115,619.80 in attorneys fees and $12,576.30 in costs for Weitz’s defense against Metropolitan’s claims related to Horizon’s work under its subcontract with Weitz. Weitz, however, argued that Horizon’s insurers were obligated to reimburse it for the entire cost of defending against Metropolitan’s counterclaim, which Weitz claimed totaled $1.1 million.
In the ensuing declaratory judgment action, the lower court agreed with Horizon’s insurers that Weitz was not entitled to the cost of defending against Metropolitan’s counterclaim not related to Horizon’s plumbing issues. The Eighth Circuit agreed, finding that Metropolitan’s counterclaim did not allege an “occurrence” within the meaning of the policies. Rather, the Eighth Circuit noted that Weitz’s performance of the Metropolitan contract according to its terms was within its control and management and its failure to perform could not be described as an unexpected event.
For a copy of the decision, click here