A risk retention group is not obligated to indemnify a construction company because the company failed to follow its insurance policy’s terms, says a federal appeals court, in affirming a lower court ruling.

A policy issued to Salem, Oregon-based Phoenix Contracting Inc. provided that “as a condition precedent” to a claim, Phoenix must have obtained specified indemnity agreements and insurance certificates for work performed by its independent contractors, according to Wednesday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Probuilders Specialty Insurance Co., RRG v. Phoenix Contracting Inc.

Phoenix was sued by a company for failing to properly oversee and check its subcontractors’ work on a project, and with breach of contract and breach of implied warranties for failing in failing to complete the work “in a good and workman like manner,” according to court documents in the case.

The litigation was subsequently settled for $250,000, according to court documents. Probuilders incurred about $63,500 in legal fees and costs.

While it had agreed to defend Phoenix under a reservation of rights, Probuilders filed suit in U.S. District Court in Eugene, Oregon, seeking a declaration it had no duty to defend and indemnify the company in the underlying lawsuit.

The district court ruled the risk retention group had no duty to defend nor indemnify the construction firm, which was unanimously affirmed by a three-judge appeals court panel.

“Because there is no dispute that Phoenix failed to fulfill the condition precedent” of obtaining indemnity agreements and insurance certificates from its subcontractors, the insurance policy does not apply to the claims in the underlying complaint, said the ruling.

The ruling also said the district court did not err in stating Probuilders may be entitled to seek reimbursement of its defense costs.

In February, the 9th Circuit ruled a Hanover Insurance Group Inc unit was not obligated to provide coverage to a construction firm being sued over work it had performed on condominium units because of a policy exclusion.