Double AA Builders (AA) was the general contractor hired by Harkins Theater to build a theater complex. AA hired Anchor Roofing Inc. (Anchor) as a subcontractor to build the complex’s roofing system. At the time it completed the roof, Anchor’s general liability protection was provided by Preferred Contractors Ins. Co., (Preferred). At Anchor’s request, AA was added as an additional insured with regard to the roofing project. AA had its own general liability coverage provided by Westfield Ins. Co.
Harkins asked AA to replace the roof which had developed leaks, driving theater customers away and damaging the work of other complex subcontractors. AA, after replacing the roof system, sought coverage from Westfield, Anchor and Preferred. Westfield settled with AA. AA and the other parties filed cross motions on the additional amount of AA’s coverage request. After a court ruled in favor of AA, Anchor and Preferred appealed.
Upon appeal, the court reviewed the basis on which the lower court decision was made. It ended up disagreeing with the result.
The higher court focused on whether AA’s additional insured status under Anchor’s general liability policy allowed it to rely on being reimbursed for the cost of dealing with the consequences of Anchor’s defective, completed work. Preferred’s policy language included both a completed work exclusion as well as an exception for work of subcontractors. The court’s examination included consideration of the policy wording that put the completed work exclusion aside for work performed on its behalf by subcontractors. The lower court decided that the exclusion was inapplicable, so coverage was granted. The higher court considered conclusions reached in other cases that it felt were relevant.
In the higher court’s opinion, the policy wording applied to a different situation than what was represented in the AA search for coverage. In its opinion, the exclusion applied to work performed by a subcontractor that is done on behalf of the named insured. In this case, the damage involved defective work performed by a subcontractor that was the named insured under its policy from Preferred. AA was an additional insured, so Anchor’s completed work was not subject to the exclusion’s exception. The higher court reasoned that allowing the lower court decision to stand would result in the insurance policy acting as a performance bond, guaranteeing the faulty work. The insurance policy was not meant to deal with the financial consequences of a business performing its own work poorly.
The lower court decision in favor of AA was reversed and remanded for rehearing.
Double AA Builders, Ltd., an Arizona Corporation, Plaintiff/Appellee, v. Preferred Contractors Insurance Company, LLC, a Montana Company, Defendant/Appellant. Court of Appeals of Arizona, Division 1. No. 1 CA-CV 15-0375. Filed December 30, 2016. Reversed and Remanded. https://caselaw[.]findlaw[.]com/az-court-of-appeals/1763701[.]html [downloaded 4.1.2020]
