No Duty to Defend Construction Defect Claims under Kentucky Law

    The federal district court determined that the insurer was not obligated to defend construction defect claims under Kentucky law. Westfield Ins. Co. v. Kentuckiana Commercial Concrete, LLC, 2023 U.S. Dist. LEXIS 222674 (W.D. Ky. Dec. 14, 2023). 

    HRB, the owner of an apartment complex, filed an arbitration demand against the general contractor, Doster Commercial Construction, for allegedly doing faulty concrete work in the construction of the apartments. Doster added its concrete subcontrator Kentuckiana Commercial Concrete – and 16 other subcontractors – to the arbitration. Kentuckiana tendered the claim to its insurer, Westfield. Wesfield defended. Doster claimed it was an additional insured under the Westfield policy and also sought coverage. Westfield refused the defend Doster. Westfield argued there was no "occurrence."

    Westfield then sued both Doster and Kentuckiana in federal court, seeking a declaration that it had no duty to defend either. Westfield moved for a judgment on the pleadings. 

    Under Kentucky law, if the insured did not intend the event or result to occur, and the event or result that occurred was a chance event beyond the control of the insured, then CGL coverage for accidents would apply to the benefit of the insured. Faulty construction-related workmanship, standing alone, was not a fortuitous "occurrence" under CGL policies.

    Here, HRB did not allege that Doster and Kentuckiana meant to build a shoddy apratment building, so the intent element was not at issue. The faulty work, however, that HRB accused Doster (and by extension Kentuckiana) of providing – and the subcontractors' adherence to the terms of their contract – was undoubtedly within defendants' "control" as understood under Kentucky law. The general contractor decided how to complete the concrete work by subcontracting with a concrete vendor of its choosing. The quality of their supervision and workmanship – the issues challenged in the undelrying arbitration – were controlled by Doster and Kentuckiana, not any third party. 

    The allegations brought by HRB did not implicate events that were beyond the control of either Doster or Kentuckiana. So neither the breach nor the faulty workmanship allegations levelled against Doster and Kentuckian constituted a fortuitous event amounting to an "occurrence" covered by the Westfield policy.The accusations involved "protracted improperly construction" and "defective workmanship" that took place "over a period of weeks" or months. Westfield ws not obligated to defend either Kentuckiana or Foster.