On April 20, the Eighth Circuit U.S. Court of Appeals affirmed the lower court's ruling, a denial of an insurer's motion for judgment as a matter of law, and found that a builder's risk insurance policy's faulty workmanship exclusion does not bar coverage for damage to roof panels following a windstorm and that the windstorm's destructive force existed despite the existence of any faulty workmanship by the insured. The case is Joseph J. Henderson & Sons, Inc. v. Travelers Prop. Cas. Ins. Co. of Am., No. 18-3341, 2020 U.S. App. LEXIS 12622 (8th Cir. Apr. 20, 2020).
The City of Iowa City, Iowa (the City) hired Joseph J. Henderson & Sons, Incorporated (Henderson) to design and install a building meant to improve the City's wastewater treatment facility. Panels on the building were damaged during a wind storm. Henderson filed a claim with insurer Travelers Property Casualty Insurance Company of America (Travelers), asserting that under the City's builders risk policy through Travelers, the insurer was required to cover the roof damage. Travelers responded that it was not liable under the policy because the damage was caused in part by Henderson's faulty workmanship.
The policy had Henderson as a "named insured" and provided that Travelers would "pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss," except for those listed in the exclusions. Travelers did not argue that a windstorm constituted a risk of direct physical loss or damage.
The policy included an exclusion for "faulty workmanship" and one for "external events." The external event exclusion stated the insurer "will not pay for loss or damage caused directly or indirectly by . . . collapse or imminent collapse from flood or earth movement." The policy made it clear that loss or damage stemming from such events was "excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage." Such exclusionary language aimed at concurrent causes, under Iowa law, is an "anti-concurrent-cause provision." The faulty workmanship exclusion bars recovery for loss or damage caused by or resulting from "faulty, inadequate or defective . . . workmanship." The faulty workmanship exclusion has no language similar to the anticoncurrent-cause provision from the external event exclusion. The policy actually states that if loss or damage is caused by a Covered Cause of Loss, the faulty workmanship exclusion does not apply.
Henderson, the City, and Travelers each hired engineering firms to determine why certain roof panels were damaged, and each firm arrived at a different conclusion; that 1) the wind, 2) faulty workmanship or 3) some combination of the two were the cause of the damage. At trial, Travelers moved for judgment as a matter of law after the case-in-chiefs for both sides were presented, asserting that no evidence had been presented showing the windstorm could have caused the damage without construction defects. The judge denied both motions and the jury found in favor of Henderson. Travelers renewed its motion for judgment as a matter of law and, as an alternative, moved for a new trial or remittitur. The district court denied these motions.
Travelers' argued that even if the faulty workmanship exclusion lacked an anticoncurrent-cause provision, coverage would still be excluded because faulty workmanship was the sole proximate cause or the efficient proximate cause of loss. The court rejected this argument.
The court held that the faulty workmanship exclusion was subject to resulting loss language since the damage occurred due to the windstorm, a covered loss.
Editors Note: Anticoncurrent causation states that any loss caused by any listed peril is excluded, even if a second peril contributed to that loss and the second peril is covered. In this case, the wind damage is covered, but the faulty workmanship is excluded, so if the faulty workmanship exclusion had included an anticoncurrent-causation clause, the court might have come down with a different decision. Here, the insured came out with the upper hand because the faulty workmanship exclusion had no anticoncurrent-causation language, and the policy stated: "if loss or damage is caused by a Covered Cause of Loss, the faulty workmanship exclusion does not apply".