On August 5, 2014, the Supreme Court of Connecticut, in Travelers Cas. & Sur. Co. v. Netherlands Ins. Co., 312 Conn. 714 (2014), affirmed a trial court's decision that allegations of years-long, continuing and progressive water intrusion caused by alleged construction defects triggered a duty to defend under CGL coverage language. In some ways, the opinion serves as a reminder of the breadth of the duty to defend. However, it also shows the importance of the wording of the allegations relating to construction defects, resulting damage and when the parties were on notice of the issues. For property owners, contractors/builders/developers and their insurers, the allegations in the complaint guide what can be a difficult and contentious determination regarding whether the insured is provided with a defense from its CGL carrier.
In Netherlands, the underlying complaint was filed by the State of Connecticut and alleged, among other things, that the prime contractor on a University of Connecticut law library project breached its contract with the State and was negligent in the construction of the project. The State had specifically claimed that during “the months and years following completion of the project and occupancy by the state, the state began to experience problems with water intrusion into the [law] library. The defendants [in the underlying action] were given notice of these problems and frequently visited the [law] library to ascertain the nature and extent of the problem.” Netherlands Insurance had provided CGL coverage to the defendant prime contractor beginning approximately four years after the completion of the law library project.
Despite the time gap between completion of the project and the policy period, the Court declared that Netherlands Insurance — which had declined to participate in the defense of the underlying claims — was liable for a pro rata share of the defense costs based upon the six policy years during which the alleged water intrusion was ongoing. This decision was based upon the Court finding that the alleged construction defects in the UConn law library constituted an "occurrence" under the policy language and that continuing water intrusion was the resulting "property damage" giving rise to potential coverage under Netherlands’ policies.
In a related repudiation of Netherlands’ position, the Court rejected the argument that coverage was precluded under the known loss or injury exclusion in its policies. The insurer had argued that the water intrusion was alleged to have begun years before the first Netherlands' policies were written and that it was clear from the underlying complaint that the insured was on notice of the water intrusion and had participated in investigations of the issue. However, the underlying complaint did not expressly state when the insured was put on notice and therefore coverage was not precluded as a matter of law. (emphasis added). The absence of a date certain upon which the insured was notified of the damage proved fatal to Netherlands’ argument.
While the Connecticut court’s decision is not controlling law in every state, it should prompt property owners, insured contractors/builders/developers, insurers and the attorneys that serve them to closely analyze the factual details alleged in a construction defect complaint. The details or lack thereof in the complaint could make the difference in whether the defendant’s insurer is compelled to provide a defense, which in turn can dramatically impact the outcome of the case.