LC Builders' CGL insurer, The Charter Oak Fire Insurance Company, determined that its policy did not cover the alleged damages. Accordingly, it declined to defend LC Builders.

After final judgment was entered, the Flemings contacted Timbersmith's CGL insurer, Auto-Owners Insurance Company, and requested payment on behalf of Timbersmith.

Auto-Owners subsequently filed a declaratory judgment action against Timbersmith and the Flemings, asserting that it had no duty to defend or indemnify Timbersmith against the Flemings' claims.

The Flemings filed a counterclaim against Auto-Owners and a third-party complaint against Charter Oak, arguing that both insurance companies were obligated to pay the judgments against their respective insured.

The U.S. District Court for the District of Utah granted summary judgment in favor of Charter Oak and Auto-Owners, and the Flemings appealed to the Tenth Circuit. 

The Insurance Policies

The policies covered:

property damage 

caused by an:

occurrence 

, defined as:

an accident, including continuous or repeated exposure to substantially the same general harmful conditions 

The circuit court affirmed.

In its decision, the circuit court explained that applicable Utah law has construed the term “accident” in the insurance policy context as being:

descriptive of means which produce effects which are not their natural and probable consequences. . . . An effect which is the natural and probable consequence of an act or course of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim that every man must be held to intend the natural and probable consequence of his deeds.

Under this definition, the Tenth Circuit continued, harm or damage was “not accidental” if it was “the natural and probable consequence of the insured's act or should have been expected by the insured.”

The circuit court then stated that the “natural results of an insured's negligent and unworkmanlike construction” did “not constitute an occurrence triggering coverage under a CGL policy.”

Accordingly, the circuit court ruled that the Flemings had not provided sufficient evidence that the judgments against LC Builders and Timbersmith included a covered “occurrence” under the policies. In the circuit court's opinion, the Flemings had alleged only “faulty construction causing damage to the insureds' own work.” There were no allegations in the pleadings, nor factual findings in the final judgments against the insured, that the “defective workmanship cause[d] damage to property other than the work product itself,” the circuit court said.

Moreover, the circuit court said that the Flemings' “vague assertions, without citations to record evidence,” that LC Builders and Timbersmith had caused “latent defects” or “dangerous,” “unsafe,” and “hazardous” conditions in the home were “insufficient to demonstrate coverage.”

Finally, the circuit court observed, the Flemings had not presented evidence that any of the faulty workmanship had been “performed by subcontractors of Timbersmith or LC Builders” or that LC Builders was Timbersmith's subcontractor.

The case is Auto-Owners Ins. Co. v. Fleming, No. 16-4118 (10th Cir. July 13, 2017). Attorneys involved include: For AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff Counter Defendant – Appellee: Richard K. Glauser, Michael W. Wright, Smith & Glauser, Sandy, UT. For CHARTER OAK FIRE INSURANCE COMPANY, a Connecticut corporation, Defendant Third-Party Defendant – Appellee: Paul M. Belnap, Strong & Hanni, Salt Lake City, UT; Andrew B. McDaniel, Strong & Hanni, Sandy, UT. For JANIS FLEMING, an individual, Defendant Counterclaimant, GEORGE FLEMING, an individual, Third-Party Plaintiff – Appellant: Rand Patrick Nolen, Fleming, Nolen & Jez, L.L.P., Houston, TX; Rhome D. Zabriskie, Provo, UT.