Q&A of the Week |
Dropped Cell Phone
A Puerto Rico subscriber recently asked the following question:
The insured, while driving his vehicle, had his cell phone in his lap. He parked his vehicle, and when he got out of his vehicle the cell phone fell to the ground outside of the vehicle, damaging the phone.
Under a HO-3, was the phone in or upon a "motor vehicle" at the moment of loss? The property was in a motor vehicle, but the damage occurred when the property fell outside the vehicle.
Assuming that the phone is considered an electronic apparatus, will the electronic apparatus special limitation of the HO-3 apply to this loss?
ANSWER: Under the HO 00 03, coverage for personal property is named perils. The insured dropped his phone getting out of the car; there is no named peril for that, therefore there is no coverage. |
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Litigation Watch |
Property Damage Meaning Discussed
The insured brought an action against its insurer due to the insurer's refusal to defend the insured in a construction defect case. This case is Cool Sunshine Heating & Air Conditioning, Inc. v. American Family Mutual Insurance Company, Civil Action No. 14-CV-1637-WJM-MEH, 2014 WL 7190233 (D. Colo. Dec. 17, 2014).
Cool Sunshine was hired as a subcontractor by Ellis Construction to work on a home. After the work was completed, the owners of the home claimed several construction defects, specifically a problem with a compressor that had been installed by Cool Sunshine. The home owners claimed the compressor did not meet the city code for noise levels and that it was installed to run on only one stage.
The homeowners later filed a lawsuit alleging that the defects were due to negligent or substandard construction practices. They sought costs to professionally repair, replace, or remediate all defects; to complete any remaining work; for loss of use of the residence; for past and future lost income; for medical expenses associated with stress and anxiety; and for other noneconomic damages. Cool Sunshine submitted the lawsuit to its insurer, American Family Mutual. The insurer denied coverage and refused to defend. Cool Sunshine then filed this lawsuit against the insurer.
The United States District Court for Colorado noted that the duty to defend must be determined based solely on a comparison of the allegations of the complaint made against the insured with the insuring provisions of the policy. After a review of the complaint and the policy, the court found that there was no allegation of property damage to any nondefective portion of Cool Sunshine's work. Therefore, the court did not find any allegations in the underlying complaint that could reasonably come within the coverage of the policy.
The court pointed out that the Colorado Court of Appeals has held that the cost to repair and replace a roof that was installed in a manner that did not meet code was not property damage as defined. And, the cost to repair a defectively installed product does not constitute property damage unless the defective product causes some damage to the property outside of the cost to replace the defective product. In this case, the court said that the underlying complaint alleged that Cool Sunshine installed an inferior compressor that is too loud and does not meet the functional requirements that were promised. There is no allegation that the inferior compressor harmed any part of the residence. The only harm linked to Cool Sunshine is that directly related to the inferior compressor. As such, the court could find no allegation of property damage within the meaning of the policy.
Moreover, the court said, even if the installation of an inferior compressor was property damage as defined, there is no coverage for the claims because of the exclusions related to damage to the insured's own work. These exclusions have routinely been held by courts to preclude coverage for work performed by the insured, including defective or inferior work and the warranties made thereon.
The court ruled that the underlying complaint contained no factual allegations of harm directly caused by Cool Sunshine outside of the request to replace the inferior compressor. There is no specific allegation that the inferior compressors damaged the residence in any way or caused the homeowners any specific harm. The court concluded that the complaint did not assert any factual or legal basis on which American Family Mutual could be held liable for indemnification, and so, the insurer had no duty to defend Cool Sunshine.
The motion for summary judgment by the insurer was granted.
Editor's Note: The U.S. District Court, Colorado, discussed the meaning of "property damage" as defined in the insured's general liability policy and found that the claims against the insured did not match the definition. The allegations against the insured amounted to a request to repair the insured's own work and the general liability policy was not meant to act as a guaranty for the quality of the insured's own work. The general liability policy is meant to apply to damage that the insured's work causes to another's property and not to damage to the insured's work itself.
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