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Vol. 6, Iss. 2
February 13, 2017

A Rarity: A Construction Defect Coverage Case That’s Interesting

Construction defect cases have taken over the coverage world. Their numbers are astronomical. But despite how many there are, they are remarkable similar. The facts are often alike – owner of a defective building or condo owners bring claims against the GC and subs – and so are the issues – is faulty workmanship an “occurrence,” the “your work” exclusion, exclusions J(5) and J(6) and the like. The cases are important and serve a critical function. But they are monotonous.

Then along came Celina Mutual Insurance Co. v. Gallas, 14-1616 (N.D. Ind. Jan. 30, 2017). Far from claims against a general contractor or other typical subcontractors, at issue was coverage for a company hired to clean the windows and doors of a home. Besides such an unusual insured for a construction defect case, the court’s decision is also worthy of note.

Homeowners hired Finishing Touch Cleaning Service to clean the glass in the windows and doors of their home. After Finishing Touch’s work was complete, the homeowners noticed white stains and spots on the glass, although the glass itself was not damaged. Finishing Touch returned to the home and removed the spots from the glass in the windows and doors.

That wasn’t the end of it: “After the Finishing Touch employees had left the home, Wendt [the homeowner] observed that the glass was clean and the water spots had been removed, but that the paint around the glass in the windows and doors was bubbling and blistering, and some paint was sliding off. He also observed that the silicone seals and caulking of the windows had ‘turned to a soft rubbery bubblegum-like’consistency and br[oke] into strands.’ The Wendts’ home subsequently experienced condensation in the windows, and on cold days and nights, condensation would drip from the windows and form small puddles inside the home. The Wendts contacted Pella Windows and various contractors regarding these problems, and were advised that replacing the windows and doors would be less expensive than repairing them. The Wendts replaced the windows and doors, which caused damage to the siding shingles covering the home’s exterior, some interior woodwork and other parts of the home’s interior. The Wendts replaced the damaged siding shingles, damaged interior woodwork and repainted and restained parts of the home's interior.”

The homeowners sued Finishing Touch, alleging that the company damaged parts of the windows and doors. Celina Mutual defended Finishing Touch under a reservation of rights. Celina filed a declaratory judgment seeking a no coverage determination.

Now, if you do construction defect coverage work you know right where this is going. The insurer acknowledged that there was “property damage” caused by an “occurrence” and the court then got right to the “your work” exclusion.

Here was the issue: “The parties agree that the Damage to Your Work exclusion does not exclude coverage for damage to other property arising out of Finishing Touch’s work. However, they disagree as to whether the damages alleged in the underlying lawsuit ‘are confined to [Finishing Touch’s] work and caused by the . . . work,’ and thus, fall within the Damage to Your Work exclusion. The application of this exclusion depends upon the meaning of Finishing Touch's ‘work.’”

Finishing Touch alleged that its agreement “was only for removing the spots on the glass, it was not to wipe down or clean, or perform any work on any portions of the home other than the glass.”

The court described Finishing Touch’s “work” as follows: “Defendants assert that ‘it was not necessary for Gallas or Finishing Touch to touch or come into contact with any portion of the windows or doors other than the glass in order to perform the limited service of removing white spots from the glass.’ But the undisputed evidence demonstrates otherwise. As Gallas testified, ‘when [Finishing Touch employees] do a window-cleaning job, the water is going to get on the frame, no matter what you do. So, they're trained to wipe off the frame.’ When Gallas instructed the employees to use OneRestore, he told them to ‘clean the window like you would normally clean the window, squeegee it off and wipe it off, wipe off the frames with their rags.’”

Here’s the money paragraph: “The Policy states that ‘your work’ ‘[m]eans . . . [w]ork or operations performed by you or on your behalf.’ It does not limit ‘your work’ to work that the insured was hired to do. Moreover, Indiana courts apply business risk exclusions ‘to what the insured or those on his behalf worked upon or produced.’ Given the undisputed evidence that Finishing Touch’s employees were trained to wipe the frames surrounding the glass they cleaned, and that they wiped off the OneRestore that came in contact with the frames, sills and cladding, the Court finds that Finishing Touch performed work upon the frames, sills and cladding surrounding the glass of windows and doors of the Wendts’ home. As such, any property damage resulting from Finishing Touch’s work upon the frames, sills and cladding of the windows and doors of the Wendts’ home is eliminated from coverage by the Damage to Your Work exclusion.” (emphasis added).

I can imagine some insurers perhaps having seen this case differently -- that Finishing Touch’s work was solely to clean the windows. Thus, if the windows had been damaged, the “your work” exclusion precludes coverage for the cost to repair or replace the windows, but not beyond that. In other words, damage to the frames, sills and cladding surrounding the glass of the windows and doors of the home was consequential, and, thus covered. Perhaps Gallas takes the “your work” exclusion further than some may have expected.

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