Westfield Insurance Company v. Sheehan Construction Company

Docket: 08-3463

Court: Court of Appeals for the Seventh Circuit; April 29, 2009; Federal Appellate Court

Original Court Document: View Document

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Sheehan Construction Company served as the general contractor for the Crystal Lake residential subdivision in Indianapolis. Homeowners experienced moisture issues that were traced back to defective work by a subcontractor. Following litigation in state court, a settlement of approximately $2.8 million was reached, for which Sheehan sought indemnification from its insurer, Westfield Insurance Company. Westfield denied the claim and initiated a declaratory-judgment action. 

The case was governed by Indiana law, and Westfield's insurance policy was designed to cover commercial general liability for accidents resulting in bodily injury or property damage. While the policy would cover damage from construction machinery or injuries to bystanders, it specifically excluded indemnification for negligent work done by subcontractors. The district court ruled in favor of Westfield, determining that the policy’s definitions and exclusions limited coverage to specific types of accidents. 

The policy included a 'your work' exclusion, which states it does not cover property damage to a contractor's own work, particularly related to the cost of repair or replacement of defective work. Sheehan contended that the issues arose from subcontractor work, pointing out that the insurance industry's standard policy was revised in 1986 to exclude subcontractor work from the 'your work' definition. However, Sheehan's policy did not include this revision and thus included subcontractor work under 'your work.' The court concluded that the water damage did not qualify for coverage under the policy's 'products-completed operations hazard' clause, leaving the determination of coverage scope unresolved.

The excerpt defines the "products-completed operations hazard," which encompasses bodily injury and property damage occurring away from the insured premises and arising from the insured's product or work, with certain exclusions. This definition ensures coverage for accidents during construction but excludes claims related to poor workmanship in completed projects. In the underlying litigation, Sheehan's claim was based on damages that did not fall under the policy's coverage, as evidenced by a former insurance adjuster's opinion that was disregarded due to lack of expertise in Indiana law. Legal precedent emphasizes that contract interpretation is a judicial function, and the policy's language must be followed. Sheehan argued that the case T.R. Bulger, Inc. v. Indiana Insurance Co. supported its claim for indemnity; however, T.R. Bulger reinforced the exclusions applicable to subcontractor work, which did not align with Sheehan's role as the general contractor responsible for its selected subcontractors. The court noted that Sheehan's claim of bad faith against the insurer, Westfield, lacked merit, as Westfield acted promptly and in accordance with the policy's terms, further suggesting that Sheehan's approach appeared to be aimed at coercing a settlement rather than asserting legitimate legal claims. The court affirmed the previous ruling.