## Facts

- Homeowners hired a general contractor to build a ground-level, flat-roof home addition under a contract requiring arbitration of disputes.
- About a year after completion, construction defects and moisture-intrusion damage were discovered, and the homeowners commenced arbitration alleging defective work.
- The contractor was insured under a commercial general liability (CGL) policy; the insurer defended the arbitration under a reservation of rights through counsel it retained.
- The arbitrator issued a damages award against the contractor; a post-award request for an explanation was denied because neither party timely requested a reasoned award under the arbitration rules.
- The contractor paid the award and sought indemnification under the CGL policy; the insurer denied coverage, asserting no covered “occurrence”/“property damage” and relying on exclusions, including those for the insured’s own work and pre-existing damage.
- The contractor sued for breach of contract; the district court granted summary judgment for the contractor, reasoning the insurer was responsible for defense counsel’s failure to timely request a reasoned award.
- The insurer appealed.

## Issues

1. Whether the contractor’s liability to the homeowners was caused by a covered “occurrence” resulting in covered “property damage” under the CGL policy, or instead fell outside the insuring agreement and/or within business-risk exclusions.
2. Whether the insurer was barred (including by estoppel) from denying coverage because counsel it retained failed to timely request a reasoned arbitration award.

## Decision

- The court of appeals reversed the summary judgment for the contractor and directed summary judgment for the insurer.
- Liability based on the contractor’s failure to inform the homeowners of pre-existing damage was not covered because it was not caused by an “occurrence” and was not caused by “property damage” as used in the policy.
- The contractor was not entitled to indemnification for liability arising from its own defective work.
- The insurer was not prevented from denying coverage merely because insurer-retained defense counsel failed to timely request an explanation of the arbitration award.

## Legal Principles

- Under a CGL policy, a contractor’s liability for nondisclosure of pre-existing damage may fall outside coverage when the liability is not caused by an “occurrence” and does not arise from covered “property damage.”
- A contractor generally is not entitled to CGL indemnity for liability arising from its own defective work when coverage is absent under the insuring agreement and/or barred by business-risk exclusions (such as “your work”).
- An insurer’s selection of defense counsel, and counsel’s procedural mistake in arbitration, does not by itself expand coverage, waive coverage defenses, or estop the insurer from litigating coverage.

## Conclusion

The court held the insurer owed no indemnity for the arbitration award because the contractor’s asserted bases of liability were not within CGL coverage, and the insurer was not barred from denying coverage by defense counsel’s failure to secure a reasoned arbitration award.


Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 806 N.W.2d 82 (Minn. Ct. App. 2011)