944 F. Supp. 2d 1013
D. Colo.2011Background
- RK Mechanical installed HVAC systems as an additional insured under a Travelers inland marine policy for The Spire Denver project (April 23, 2007–July 23, 2009).
- Dunn was the general contractor; RK's subcontract covered plumbing work, including about 171 CPVC Charlotte flanges; a June 16, 2009 flange failure caused water damage.
- Travelers acknowledged coverage for water-damage costs but did not reimburse RK for removal/replacement of Charlotte flanges; initial indemnity did not cover all flange replacements.
- RK investigated remaining Charlotte flanges, finding widespread cracking, and replaced them with a different manufacturer’s flanges, involving removal/replacement of various building components.
- RK submitted a Notice & Claim in December 2009; Travelers denied indemnity on grounds of exclusions for faulty materials/workmanship; suit for breach of insurance contract and declaratory relief followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RK is entitled to indemnity for mitigation/remediation costs. | RK argues Travelers covered mitigation costs incurred due to Flange Failure. | Travelers asserts costs arise from excluded faulty workmanship/materials; indemnity not available. | No indemnity for mitigation costs; costs correlate to excluded losses. |
| Whether waiver or estoppel applies to extend coverage for mitigation. | Travelers’ prior payments created implied coverage; Traveler stood silent during remediation. | Payments were for water damage while remediation for flanges was excluded; no estoppel/waiver due to lack of coverage. | Waiver/estoppel do not apply to create coverage and do not alter exclusions. |
| Whether the ensuing loss provision broadens coverage for remediation costs. | Remediation costs were incurred to prevent further damage from a covered loss. | Ensuing loss provision does not override exclusions for faulty workmanship/materials. | Ensuing loss provision does not restore coverage for excluded faulty workmanship/materials. |
| Whether Exclusions 3.d and 4.f are internally consistent or create ambiguity. | RK contends internal conflict between exclusions creates ambiguity in RK's favor. | Exclusions address different losses; no inconsistency; no ambiguity. | No internal inconsistency; exclusions unambiguously bar the claimed costs. |
| Whether RK had a common-law duty to mitigate that supports recovery. | RK relies on duty to mitigate and Ballow-like reasoning to recover mitigation costs. | Mitigation costs tied to excluded losses; no common-law mitigation recovery here. | Colorado does not recognize a common-law mitigation duty to recover mitigation costs in this insurance context. |
Key Cases Cited
- Bangert Bros. Const. Co., Inc. v. Americas Ins. Co., 888 F.Supp.1069 (D. Colo. 1995) (exclusionary clauses must be clear for coverage of defective work)
- Edison v. Swire Pacific Holdings, Inc., 83 Cal.App.3d 747 (Cal. Ct. App. 1978) (sue-and-labor costs depend on coverage; remediation costs excluded if due to faulty workmanship)
- John S. Clark Co., Inc. v. United Nat’l Ins. Co., 304 F.Supp.2d 758 (M.D.N.C. 2004) (sue-and-labor recovery tied to policy insuring provisions; not independent coverage)
- Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 139 F.Supp.2d 1374 (S.D. Fla. 2001) (recovery under sue-and-labor clause depends on insured’s losses covered by policy)
- Reliance Insurance Co. v. The Escapade, 280 F.2d 482 (5th Cir. 1960) (insurer may be estopped from denying salvage when it directs insured to take actions; context matters)
- National Housing Bldg. Co. v. Acordia of Va. Ins. Agency, Inc., 267 Va. 247 (Va. 2004) (remediation expenses not recoverable when caused by defective design under exclusions)
- Thompson v. Maryland Cas. Co., 84 P.3d 496 (Colo. 2004) (insurance policy interpretation favors ordinary meaning and fairness; ambiguous terms construed against insurer)