US District Court holds no duty to defend contractor for claim of damage to foundation of building despite some evidence that foundation was outside contractor's scope of work

Collette Synchantha alleged that she had hired Mills Construction Company to rebuild her house after it was damaged by a fire, and that there were problems during construction including damage to the foundation and various construction defects.

Mills' general liability insurer, Nautilus Insurance Company, declined its request for defense of the lawsuit.  Mills provided additional information indicating that the foundation was outside of its scope of work.  Nautilus continued to decline to defend.

The issue before the United States District Court in Mills Constr. Corp., Inc. v. Nautilus Ins. Co., 2019 WL 1440404 (D. Mass) was whether the damage alleged was an occurrence and, if so, whether business risk exclusions excluded coverage.  As many (but not all) courts do, the court treated the two questions as the same -- the issue (in a nutshell) being whether the damage was to Mills' work, in which case there would be no coverage.   

For example, let's say a contractor is hired only to replace a roof.  He installs flashing incorrectly, which allows water infiltration that damages the roof and the interior of the building.  There would be no coverage for damage to the roof, but there would be coverage for damage to the interior of the building (which the contractor did not work on).  (Disclaimer: that description is a broad outline.  The case law on insurance coverage for construction defects is not straightforward, the policy terms are complex and not entirely standardized, and any given claim usually requires extensive factual and legal analysis.)

The court first addressed the perennial problem of whether Nautilus was required to take into account the additional information provided by Mills -- that the foundation was not part of its scope of work  -- in determining whether it had a duty to defend  Although the court provided a pretty good summary of the law on that issue, ultimately it did not give a sharp analysis of whether the external facts determined the duty to defend in the case before it.  It took some of the external facts into account. It held in a footnote that where Mills had provided selected quotes from Sychantha's response to requests for admission, it would consider those responses in their entirety instead of just the isolated quotes. Then it held that "it is the underlying claimant's claims, and not the insured's contrary version of events, or even the merits of the underlying claim, that controls the issue of coverage at the duty to defend stage." 

The court found that there was no coverage.  Sychantha alleged in her complaint that Mills was hired to rebuild her entire home.  The foundation was part of the home even if Mills had not worked on and did not anticipate working on it.  Sychantha stated in her discovery responses that the scope of work included work on the foundation.  The contract between Sychantha and Mills was for "reconstruction of a single family home."  The fact that the estimate did not include work on the foundation did not change the outcome.