390 F. Supp. 3d 1009
D. Ariz.2019Background
- Sunwestern Contractors contracted with City of Tucson to build a large water main system; during May 2013 pressure testing several large-diameter pipe flanges and gaskets failed, causing water damage to pipe, pipe bedding, trenches, and surrounding areas.
- The City terminated Sunwestern's contract and sought about $4,000,000 in damages; Sunwestern had a CGL policy and an umbrella (UMB) policy with Cincinnati and a separate performance bond; the City recovered ~$2.6M from Sunwestern’s performance bond.
- Cincinnati investigated and denied coverage, arguing the Incident was not an "occurrence" and that multiple policy exclusions applied; Sunwestern sued seeking coverage and asserted reasonable-expectation arguments based on broker statements and a prior claim.
- The core factual dispute (who caused the faulty installation) is immaterial for summary judgment: the Court treated the event as faulty workmanship that produced consequential property damage.
- The Court analyzed whether the Incident constituted an "occurrence" under the CGL, whether exclusions (j)(5), (j)(6), and (l) (and parallel UMB exclusions) barred coverage, and whether Sunwestern had a reasonable expectation of coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Incident is an "occurrence" under the CGL policy | Sunwestern: faulty work caused property damage during testing, so it is an occurrence | Cincinnati: damages are only for repairing Sunwestern's faulty work (not an occurrence) | Held: It is an occurrence because the faulty workmanship produced property damage beyond the defective parts |
| Whether CGL exclusions j(5) and j(6) bar coverage for damage to incomplete work and consequential damage | Sunwestern: exclusions ambiguous; damage is to personal property (pipes, flanges), and completed-operations language creates conflict | Cincinnati: j(5)/j(6) exclude damage to the part of real property being worked on and work incorrectly performed | Held: j(5) and j(6) unambiguously exclude damage to work that was still in progress (and j(6) excludes the defective parts themselves) |
| Whether CGL exclusion (l) (and UMB parallel exclusion) bar coverage for completed work and interplay with products-completed-operations | Sunwestern: products-completed-operations should provide coverage; (l) conflicts and creates ambiguity | Cincinnati: (l) excludes damage to insured’s own completed work; the products-completed-operations clause does not override other exclusions | Held: (l) unambiguously bars coverage for damage to the insured’s own completed work; no ambiguity—CGL/UMB do not cover insured’s own faulty work |
| Whether Sunwestern had a reasonable expectation of coverage (broker statements / prior claim) | Sunwestern: broker representations and a prior settlement created an expectation of coverage for faulty workmanship/completed operations | Cincinnati: broker was an independent agent (not insurer), and prior settlement involved subcontractor-caused loss, so not comparable | Held: No reasonable expectation of coverage; broker statements and the prior incident do not alter policy exclusions |
Key Cases Cited
- U.S. Fid. & Guar. Corp. v. Advance Roofing & Supply Co., 163 Ariz. 476, 788 P.2d 1227 (Ariz. Ct. App.) (faulty workmanship alone is not an occurrence)
- Lennar Corp. v. Auto-Owners Ins. Co., 214 Ariz. 255, 151 P.3d 538 (Ariz. Ct. App.) (distinguishes faulty workmanship alone from faulty workmanship causing property damage — latter can be an occurrence)
- Desert Mountain Props. Ltd. P’ship v. Liberty Mut. Fire Ins. Co., 225 Ariz. 194, 236 P.3d 421 (Ariz. Ct. App.) (broad-form property-damage exclusion bars repair of defective work but does not bar coverage for damage to nondefective property caused by faulty work)
- Double AA Builders, Ltd. v. Preferred Contractors Ins. Co., LLC, 241 Ariz. 304, 386 P.3d 1277 (Ariz. Ct. App.) (completed-operations and "your work" exclusions can bar recovery for an insured seeking only to repair its own defective work)
- Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir.) (exclusion j(6) bars coverage only for the defective part itself, not consequential damage to nondefective portions)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S.) (summary-judgment standard for determining triable factual disputes)