Arizona Supreme Court Rules in Favor of Developer on Claim Against CGL Insurer for Cost of Repairing Defective Construction

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In May 2011, the Arizona Supreme Court affirmed the Arizona Court of Appeals' August 2010 decision affirming a jury trial verdict and subsequent judgment in favor of a developer who had sued its commercial general liability (CGL) insurer to recover the cost of repairing 50 homes in a master-planned community. Desert Mountain Properties Limited Partnership v. Liberty Mutual Fire Insurance Company, 2011 Ariz. LEXIS 25, 250 P.3d 196 (May 12, 2011).

While the Court of Appeals had ruled on many issues raised by both the developer and the insurer on cross appeals, the Supreme Court evaluated just the following three issues: (1) whether a CGL policy covers an insured's contractual liability for damage that caused only economic loss, (2) whether the CGL policy's contractual liability exclusion applies only when an insured has "assumed" another's liability by agreeing to indemnify or hold another harmless and (3) whether an insured's voluntary expenditures to repair property damage caused by construction defects resulted from a "legal obligation" to pay "damages." The Supreme Court affirmed the Court of Appeals' rulings on these three issues. The Supreme Court's decision should be very helpful to developers, contractors and subcontractors attempting to obtain CGL insurance coverage in Arizona when the insurer raises any of these arguments.

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