Breach of Contract Exclusion Bars Coverage for Construction Defect Claim

    The court determined the policy's breach of contract exclusion precluded coverage for a claim against the general contractor insured for construction defects. Mt. Hawley Ins. Co. v. McAtamncy, 2024 U.S. Dist. LEXIS 497 (N. D. Cal. Jan. 2, 2024).

    McAtamney, a general contractor dong business as Kilrea Construction, was hired by Jeffrey Horowitz for a home-renovation project. After completion of the project, Horowitz discovered defects in the work. He filed a complaint alleging that Kilrea breached obligations to construct and complete the work in an expeditious and workmanlike manner, free from any faults and defects. He brought claims for breach of contract, breach of implied warranty, negligence, neglignet supervision, and declaratory relief. 

    Kilrea's insurer, Mt. Hawley, agreed to defend, but reserved the right to later deny coverage for any uncovered claims. The breach of contract exclusion provided there was no duty to defend a claim for property damage arising from breach of an express or implied contract or warranty.

    Mt. Hawley brought suit and moved for summary judgment seeking a determination it had no duty to defend or to indemnify. The court found that the exclusion barred potential for coverage with respect to the entire underlying action. Each of Horowitz's claims shared the same operative facts – i.e., that Kilrea breached a contract with Horowitz to properly construct his home. All of the claims were at a minimum, incident to or connected with Horowitz's allegatons that Kilrea breached various contracts or warranties by constructing the residence in a defective manner. The claims for negligence and negigent supervision were likewise incident to and connected with the breach of contract allegations. All of Horowitz's claims arose out of, or at the very least, bore some connection to the same conduct alleged to constitute a breach of contract. This precluded coverage.