It is a prevailing rule of law that where there is no Insurance Coverage, there is no Bad Faith Claim either. Sometimes that rule is applied in silence, i.e., without even mentioning it. Such a decision came in the case of Download Continental Western Insurance Co. v. Shay Construction, Inc. (D. Colo. Case No. 10.cv.02126, Order on MSJ Filed July 28, 2011) PUBLIC ACCESS, also published as 2011 WL 3236102 (D. Colo. July 28, 2011)(authorized password required to access Westlaw).
Shay and White were the two Defendants in a Declaratory Judgment Action over Insurance Coverage. The DJA Plaintiff was Continental Western, which had previously issued a CGL or "Commercial General Liability" Insurance Policy to Shay Construction. Shay's subcontractors filed a lawsuit in which they asserted claims against Shay, and also against White, the General Contractor on the Construction Project in question. White cross-claimed against Shay in the Underlying Liability Case. Continental Western sought a declaration that its CGL did not provide a Duty to Defend anyone against any of the Claims alleged in the underlying case.
In the DJA, Shay counterclaimed against Continental Western for alleged "breach of contract, bad faith breach of insurance contract, and statutory bad faith" under cited Colorado Revised Statutes. Continental Western Insurance Co. v. Shay Construction, Inc., 2011 WL 3236102 at *2.
"The only property damage alleged is Shay's defective work and damage to the work of other trades resulting from the repair of Shay's deficient work. This raises the question, then, of whether this would be considered an accident pursuant to the Policy." Id. at *4. The District Court assumed for purposes of this decision that this could be considered an accident pursuant to the Policy. However, what was claimed was affirmatively excluded. What was claimed fell within Exclusions (j)(5) and (j)(6), standard provisions in the CGL Policy almost totally in use in this country. These two Exclusions together "are described as 'faulty workmanship' provisions." Id. at *6.
"Exclusion (j)(5) generally applies when work is in progress and focuses on the area on which the insured is performing work; Exclusion (j)(6), on the other hand, focuses on the repair of that work and expressly does not apply if the work has been completed." Id. Shay's efforts to repair its own work and allegedly damage the work of others in the process, fell afoul of Exclusion (j)(5) in the eyes of the Court. Similarly, Exclusion (j)(6) excluded "tear out costs" such as those allegedly caused by Shay when it made repairs to tear out its own work, and allegedly thereby damaged the work of others in the process. "Under the circumstances, therefore, Continental Western's duty to defend Shay was not triggered." Id. at *7. The Court accordingly entered its Order Granting Continental Western's Motion for Summary Judgment "on all its claims and against Shay Construction on Shay's counterclaims." Id.
In the course of entering its Order the Court did not mention that among Shay's counterclaims were claims for Bad Faith Breach of Insurance Contract and for Statutory Bad Faith. In fact, after describing what counterclaims were alleged by Shay at the outset of the Court's opinion (as noted above), the Court never mentioned them again. Its decision is, however, squarely in line with the vast majority of jurisdictions that have determined where there is no Insurance Coverage, there is no Bad Faith as a matter of law.
The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida. The author will be speaking. As a result, the ACI will offer you a large discount if you choose to register for the Conference. In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI and the deadline most recently announced by the ACI for requesting this discount is August 31, 2011. Ms. Waltmon's direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at [email protected]. Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.
Please Read The Disclaimer.
Comments