A subcontractor cannot recover under a property owner’s Liberty Mutual Insurance Group unit’s builders risk policy because of the coverage’s exclusion for defective workmanship, says a federal appeals court.

Colorado Center Development LLC, which owns property in Denver and had a builders risk policy with Liberty Mutual Fire Insurance Co., hired a construction firm to construct an office building, according to Tuesday’s ruling by the 10th U.S. Circuit Court of Appeals in Denver in Rocky Mountain Prestress LLC v. Liberty Mutual Fire Insurance Co.

The construction company hired Denver-based Rocky Mountain Prestress to engineer, supply and install precast concrete components connections and erections aids, and to supply and install grout and/or patching of all connections required by the engineering for the precast’s structural integrity, according to the ruling.

An engineering firm hired by the construction company concluded there were “potential structural issues” with RMP’s work and submitted a plan detailing regrouting repairs that would be required at various faulty joints, according to the ruling.

RMP submitted a claim to Liberty Mutual seeking coverage under Colorado Center’s policy. It then filed suit against the insurer seeking coverage, and Liberty Mutual responded with a motion for summary judgment. The motion was granted by the U.S. District Court in Denver.

The appeal was upheld by an appellate court panel. A loss “caused by an act during a renovation will be covered if the act causes a covered peril, such as a fire, and that latter peril damages the building,” said the ruling. 

“In the present case, there was only one cause of the (insureds)’ loss – the spraying of the building which caused damage to the windows – and because that was not a covered peril, the resulting loss clause did not apply,” the ruling said.

“In sum, RMP points to no evidence for which a reasonable jury could find that it sustained a loss beyond its cost of repairing its own faulty workmanship in the grouting of joints,” said the ruling.

“This claimed remediation loss unambiguously falls with the Policy’s exclusion for defective workmanship, and the Policy’s resulting-loss exception does not restore coverage for this expressly excluded cause; any contrary interpretation would contradict the terms of the Policy and permit the exception to swallow the rule,” said the appeals court judges, in affirming the lower court.

Because one of the judges who heard the appeal passed away before the ruling, the decision was issued by the two remaining judges, which is permissible if they agree, according to the ruling.

Attorneys in the case could not be reached for comment.