Construction Defect Case In Arizona Examines Policy Coverage of Arbitrator’s Award for Attorney Fees and Costs

CD Coverage has a nice summary of a recent construction defect case in Arizona:

In American Family Mut. Ins. Co. v. Spectre West Builders Corp., No. CV09-968-PHX-JAT (D. Ariz. Feb. 4, 2011), arbitration proceedings were instituted against insured general contractor Spectre by the homeowners association for a condominium project constructed by Spectre, seeking damages for the repair of common element construction defects and resulting property damage. Spectre’s CGL insurer American Family defended under a reservation of right. The arbitration resulted in an award against Spectre for damages for the repair of the construction defects and resulting property damage, as well as the association’s attorneys fees and costs pursuant to the condominium documents and state statute. American Family filed suit seeking a declaratory judgment on its duty to indemnify. After ruling that at least some of the arbitration award was for damages because of property damage caused by an occurrence, the federal district trial court, applying Arizona law, held that the attorneys fees and costs constituted “damages because of property damage.” The court next rejected American Family’s argument that the attorneys fees and costs fell within the contractual liability exclusion on the basis that they were awarded pursuant to statute rather than contract, the exclusion only applied to assumed liability such as contractual indemnity, and while the exclusion applied to property damage, it did not apply to damages because of property damage.

Google Scholar has a copy of the full decision. As part of the decision, the District Court granted American Family’s motion to strike affidavits of expert witnesses that were attached to documents submitted by the defendant. Specifically, affidavits by Ron Risto (R.H. Adcock) and Carl Josephson (Josephson Werdowatz Associates) were rejected by the court. However, Risto’s report that was submitted by the homeowner association was accepted by the court. It appears that the affidavits were rejected due to procedural issues, not due to the opinions expressed. The court found that the arbitrator’s award of $300,000 for attorney’s fees and