Black & Veatch Corporation v. Aspen Insurance
882 F.3d 952
10th Cir.2018Background
- Black & Veatch (B&V), an EPC contractor, subcontracted internal components of seven jet bubbling reactors (JBRs) to Midwest Towers, Inc. (MTI); MTI's defective work caused deformation, cracking, and collapse of components.
- B&V settled with the power company (AEP) and agreed to pay over $225 million for repair/replacement; B&V recovered $3.5 million from its primary insurer (Zurich) and sought excess coverage from Aspen under a CGL policy for ~ $72 million.
- Aspen denied coverage; Aspen's policy is a CGL excess policy (limits $25M) with a typical structure: broad insuring agreement (coverage for property damage caused by an "occurrence"), exclusions (including a "Your Work" exclusion), and a subcontractor exception to that exclusion.
- The district court granted Aspen partial summary judgment, holding damage to B&V's own work-product (the JBRs) caused by defective construction did not constitute an "occurrence" under New York law, so Aspen owed no coverage.
- The Tenth Circuit reversed and remanded, predicting the New York Court of Appeals would find these subcontractor-caused damages are covered as an "occurrence," applying policy text, the subcontractor exception, ISO form history, and New York contract interpretation principles.
Issues
| Issue | Plaintiff's Argument (B&V) | Defendant's Argument (Aspen) | Held |
|---|---|---|---|
| Whether defective workmanship by a subcontractor that damages the insured's completed work can be an "occurrence" under the CGL policy | The losses were accidental, harmed a third party (AEP), and the policy (including the subcontractor exception) contemplates coverage for subcontractor-caused damage | Damage to the insured's own work is not a covered "occurrence"; CGL policies do not insure faulty workmanship in the work product itself | Reversed district court: such damages can be an "occurrence" under the Policy as a matter of New York law prediction; remanded for further proceedings |
| Whether AEP (an additional insured) defeats third‑party property‑damage status | B&V: separation‑of‑insureds clause and the scope of AEP's additional‑insured status preserve AEP as a third‑party claimant for B&V's coverage claim | Aspen: additional insured status means AEP isn't a third party under the policy | Court: AEP can be treated as a third party for purposes of B&V's claim because the additional‑insured endorsement is limited and the separation‑of‑insureds clause preserves inter‑insured claims |
| Whether reading the definition of "occurrence" to include subcontractor defects would render policy provisions (subcontractor exception, Endorsement 4) meaningless | B&V: excluding subcontractor‑caused damage from "occurrence" would nullify the subcontractor exception and the "that particular part" limitation in Endorsement 4 | Aspen: basic insuring agreement never intended to cover damage to the insured's work, so subcontractor exception is interpretive only | Court: applying New York's rule against surplusage, the subcontractor exception and Endorsement 4 have effect only if subcontractor‑caused damage can be an "occurrence" |
| Whether New York intermediate appellate decisions (e.g., Fuller) control result | B&V: those cases are distinguishable or pre‑1986 and do not address policies with the subcontractor exception; trend and ISO revisions support coverage | Aspen: Fuller and related NY cases hold damage to the insured's own work is not an "occurrence" and should control | Court: intermediate decisions are distinguishable/outdated; considering ISO history, other state supreme court trends, and New York contract principles, the Court predicts the NY Court of Appeals would allow coverage |
Key Cases Cited
- Greystone Constr., Inc. v. Nat'l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir. 2011) (federal precedent holding subcontractor faulty workmanship can in some circumstances be an "occurrence" under similar CGL language)
- Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640 (N.Y. 1993) (New York Court of Appeals: "accident" means damages are unexpected and unintentional; excludes only intended harms)
- Roman Catholic Diocese of Brooklyn v. Nat'l Union Fire Ins. Co. of Pittsburgh, 21 N.Y.3d 139 (N.Y. 2013) (New York Court of Appeals: contract interpretation requires giving meaning to all policy provisions; avoid surplusage)
- Viking Pump, Inc. v. Century Indem. Co., 27 N.Y.3d 244 (N.Y. 2016) (reiterating rule against interpretations that render contractual provisions meaningless)
- George A. Fuller Co. v. U.S. Fid. & Guar. Co., 200 A.D.2d 255 (N.Y. App. Div.) (1994) (intermediate appellate decision often cited for rule that CGL policies do not cover faulty workmanship in the work product itself; Tenth Circuit distinguishes it as inapposite here)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (state high‑court authority recognizing that the subcontractor exception gives meaning to coverage for subcontractor‑caused damage)