Insurer must contribute in construction defect dispute

A Great American Insurance Co. unit is obligated to contribute $334,000 plus interest in a coverage dispute with a Zurich Insurance Group Ltd. unit in a construction defect case, says a federal appeals court in a divided opinion that upholds a lower court ruling.

Schaumburg, Illinois-based Maryland Casualty Co., a Zurich unit, had insured general contractor Red Point Homes Inc., based in Sandy, Utah, under a policy effective from November 2001 to November 2002 that had a $500,000 per occurrence and a $1 million aggregate limit of liability, according to Tuesday’s ruling by the 10th U.S. Circuit Court of appeals in Denver in Maryland Casualty Co. v. Mid-Continent Casualty Co.

Tulsa, Oklahoma-based Mid-Continent, a Great American unit, issued policies running from November 2002 to November 2004 with a $1 million per occurrence and a $2 million aggregate limit, according to the ruling. Mid-Continent’s policies included “your work” and “impaired property” exclusions.

In May 2008, a homeowner’s association filed a complaint against Red Point, among others, charging defective design and construction of a Salt Lake City condominium project.

Maryland defended Red Point in the underlying action, but Mid-Continent denied Maryland’s requests for a defense. Red Point and the homeowner’s association settled the case for an undisclosed amount in 2013. The settlement agreement assigned to Maryland any claims it had against Mid-Continent for defense costs.

In 2014, Maryland Casualty filed suit against Mid-Continent in U.S. District Court in Salt Lake City, seeking a ruling Mid-Continent had a duty to defend in the underlying action. The District Court granted Maryland’s motion, and entered a judgment against Mid-Continent for $334,000 plus prejudgment interest.

The appellate panel’s majority opinion upheld the lower court ruling. The “allegations in the underlying action against Red Point were potentially covered under Mid-Continent’s policies, triggering Mid-Continent’s duty to defend,” said the ruling.

The dissenting opinion said one of the issues in the case, whether Maryland’s complaint against Mid-Continent is barred by the statute of limitations, should have been referred to the Utah Supreme Court.