from the United States District Court for the District of
Kansas (D.C. No. 2:12-CV-02350-SAC)
T. Dekker of Pillsbury Winthrop Shaw Pittman LLP, Washington,
D.C. (David L. Beck of Pillsbury Winthrop Shaw Pittman LLC,
Washington, D.C., and Roy Bash of Polsinelli PC, Denver,
Colorado, with him on the brief) for Plaintiff - Appellant.
J. Franco (Andrew C. Patton and Scott O. Reed with him on the
brief), of Franco & Moroney, LLC, Chicago, Illinois, for
Defendants - Appellees.
BRISCOE, MATHESON, and PHILLIPS, Circuit Judges.
MATHESON, Circuit Judge.
case is an insurance coverage dispute between
Plaintiff-Appellant Black & Veatch Corporation
("B&V") and Defendants-Appellees Aspen
Insurance (UK) Ltd. and Lloyd's Syndicate 2003
(collectively, "Aspen"). The issue is whether Aspen
must reimburse B&V for the costs B&V incurred due to
damaged equipment that its subcontractor constructed at power
plants in Ohio and Indiana. The district court held that
Aspen need not pay B&V's claim under its commercial
general liability ("CGL") insurance policy (the
"Policy") because B&V's expenses arose from
property damages that were not covered
"occurrences" under the Policy. Because the only
damages involved here were to B&V's own work product
arising from its subcontractor's faulty workmanship, the
court concluded that the Policy did not provide coverage and
granted Aspen's motion for partial summary judgment.
district court had diversity jurisdiction under 28 U.S.C.
§ 1332. We exercise appellate jurisdiction under 28
U.S.C. § 1291. Because we predict that the New York
Court of Appeals would decide that the damages here
constitute an "occurrence" under the Policy, we
vacate the court's summary judgment decision and remand
for further consideration in light of this opinion.
is a global engineering, consulting, and construction
company. A portion of its work involves "EPC
contracts." "EPC" stands for engineering,
procurement, and construction. Under an EPC contract, B&V
delivers services under a single contract. It supervises the
project and typically subcontracts most-if not all-of the
actual procurement and construction work.
Underlying Claim Against B&V for Property
2005, B&V entered into EPC contracts with American
Electric Power Service Corporation ("AEP") to
engineer, procure, and construct several jet bubbling
reactors ("JBRs"), which eliminate contaminants
from the exhaust emitted by coal-fired power
plants. For at least seven of these JBRs, which
were located at four different power plants in Ohio and
Indiana, B&V subcontracted the engineering and
construction of the internal components to Midwest Towers,
Inc. ("MTI"). Deficiencies in the components
procured by MTI and constructed by MTI's subcontractors
caused internal components of the JBRs to deform, crack, and
work on three of the JBRs was completed, and while
construction of four others was ongoing, AEP alerted B&V
to the property damage arising from MTI's negligent
construction. AEP and B&V entered into settlement
agreements resolving their disputes relating to the JBRs at
issue here. Under the agreements, B&V was obligated to
pay more than $225 million in costs associated with repairing
and replacing the internal components of the seven JBRs. 2.
The B&V-Aspen CGL Policy
had obtained several insurance policies to cover its work on
these JBRs.Zurich American Insurance Company
("Zurich") provided the primary layer of coverage
for up to $4 million for damage to completed work. Under the
CGL Policy at issue here, Aspen provides the first layer of
coverage for claims exceeding the Zurich policy's
limits. The Policy limits coverage up to $25
million per occurrence and $25 million in the aggregate. The
structure of the Policy consists of (a) a basic insuring
agreement defining the general scope of coverage, (b)
exclusions from coverage, and (c) exceptions to the
Basic insuring agreement
The Policy's basic insuring agreement reads:
We [the Insurer] will pay on behalf of the
"Insured" those sums in excess of the [liability
limit provided by other insurance policies] which the
"Insured" by reason of liability imposed by law, or
assumed by the "Insured" under contract prior to
the "Occurrence", shall become legally obligated to
pay as damages for:
(a) "Bodily Injury" or "Property Damage"
. . . caused by an "Occurrence" . . .
ROA, Vol. 1 at 68.
defines the key terms as follows:
. Occurrence: "an accident,
including continuous or repeated exposure to substantially
the same general harmful conditions, that results in
'Bodily Injury' or 'Property Damage' that is
not expected or not intended by the 'Insured'."
Id. at 71.
. Property Damage: "physical
injury to tangible property of a 'Third Party',
including all resulting loss of use of that property of a
'Third Party' . . . ." Id. at 72.
. Third Party: "any company,
entity, or human being other than an 'Insured' or
other than a subsidiary, owned or controlled company or
entity of an 'Insured'." Id.
the Policy covers damages arising from an "occurrence,
" which includes an accident causing damage to the
property of a third party. It does not define
the basic insuring agreement, the Policy then scales back
coverage through several exclusions, two of which are
relevant here. The first, known as the "Your Work"
exclusion, or "Exclusion F, " excludes coverage for
property damage to B&V's own completed work.
This policy does not apply to . . . 'Property Damage'
to 'Your Work' arising out of it or any part of it
and included in the 'Products/Completed Operations
Id. at 74. "Products/Completed Operations
Hazard" refers to property damage or bodily injury
arising out of completed work. Id. at 72. "Your
Work" is defined as "work operations performed by
you or on your behalf by a subcontractor. Id. at 73.
References to B&V's own work thus include work done
by B&V as well as MTI.
second exclusion, known as "Endorsement 4, "
excludes coverage for property damage to the "particular
part of real property" that B&V or its
subcontractors were working on when the damage occurred.
Id. at 83. This exclusion pertains only to
ongoing, rather than completed, work.
"Your Work" exclusion is subject to an exception,
thus restoring some coverage. The exception provides that
"[the 'Your Work' exclusion] does not apply if
the damaged work or the work out of which the damage arises
was performed on [B&V's] behalf by a
subcontractor." Id. at 74 (emphasis
added). In other words, the Policy does not cover property
damage to B&V's own completed work unless
the damage arises from faulty construction performed by a
subcontractor. We refer to this as the "subcontractor
submitted claims to its liability insurers for a portion of
the $225 million it cost to repair and replace the defective
components. After B&V recovered $3.5 million from Zurich,
its primary insurer,  it sought excess recovery from Aspen.
Aspen denied coverage. B&V sued Aspen in federal district
court for breach of contract and declaratory judgment as to
B&V's rights under the Policy. B&V sought
coverage for approximately $72 million, a portion of the
total loss. On cross-motions for partial summary judgment on
the coverage issue, the court sided with Aspen, holding that
damage arising from construction defects was not an
"occurrence" under the Policy unless the damage
occurred to something other than B&V's own
work product. Because the damages here occurred only to the
B&V's own work product-the JBRs-the court found they
were not covered. This appeal followed.
begin with our standard of review. We then discuss
standard-form CGL policies, relevant New York law regarding
CGL policies and insurance contract interpretation, and the
relevance of our decision in Greystone Construction, Inc.
v. National Fire & Marine Insurance Co., 661 F.3d
1272, 1289 (10th Cir. 2011), which addressed a similar
coverage issue. Interpreting the Policy in light of
applicable law, we conclude the district court erred in
determining that a subcontractor's faulty workmanship
causing damage to an insured's own work can never be an
threshold and primary question is whether the New York Court
of Appeals, the highest court in the State of New York, would
hold that the Policy's basic insuring agreement covers
the property damage to the JBRs as an "occurrence."
Greystone, 661 F.3d at 1282 (explaining that in the
absence of a decision by the highest court of a state, we
follow a decision by an intermediate court unless we find a
convincing reason to do otherwise). We conclude the damages
constitute an "occurrence" under the Policy because
they were accidental and harmed a third party's property.
Further, a contrary reading would render the
"subcontractor exception" and "Endorsement
4" mere surplusage, in violation of New York law. The
subcontractor exception does not create coverage. Only the
basic insuring agreement can do that. But the subcontractor
exception informs our understanding of an
"occurrence" based on New York's rule that we
should read the insurance policy as a whole and avoid
interpretations that render provisions meaningless. Applying
these analytical tools, we predict the New York Court of
Appeals would conclude that the damages at issue here are
"occurrences" under the Policy's basic insuring
York state court decisions have not resolved whether
subcontractor damages can be deemed an "occurrence"
under a CGL policy containing a subcontractor exception. The
district court and Aspen contend that New York courts have
answered this question, relying heavily on George A.
Fuller Co. v. United States Fidelity and Guaranty Co.,
613 N.Y.S.2d 152, 153 (N.Y.App.Div. 1994), and other
intermediate appellate court decisions. But they ignore a
critical distinction between Fuller and the present
case. The court in Fuller considered a CGL policy
that excluded coverage for damages to an
insured's own work, whether the damage was caused by the
contractor or a subcontractor. Unsurprisingly,
Fuller concluded that the particular policy in that
case was not intended to insure against faulty workmanship in
the work product itself. Id. at 155. The decision
offered no analysis regarding policies, such as the one here,
explicitly stating that damages to an insured's own work
are covered when a subcontractor, rather than the
contractor itself, performed the faulty workmanship. In other
words, Fuller does not stand for the proposition
that damages caused by a subcontractor's faulty
workmanship can never constitute an "occurrence"
under a CGL policy. For this and other reasons more fully
explained below, Fuller and the cases that rely on
it are inapt and distinguishable. We thus reverse the
district court's holding that denied coverage and remand
for further proceedings in light of this
Standard of Review
review summary judgment de novo and apply the same legal
standard as the district court. Cornhusker Cas. Co. v.
Skaj, 786 F.3d 842, 849 (10th Cir. 2015). A court
"shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a); see also Cornhusker, 786 F.3d at
850. We also review legal questions de novo, including the
district court's interpretation of New York law, which
the parties agree governs here. See Bird v. West Valley
City, 832 F.3d 1188, 1199 (10th Cir. 2016). "Where
the state's highest court has not addressed the issue
presented, the federal court must determine what decision the
state court would make if faced with the same facts and
issue." Id. (quotations omitted).
Standard-Form CGL Policies
policy covers the costs a policyholder incurs due to property
damage and bodily injury. See Donald S. Malecki,
Commercial General Liability Coverage Guide, The
National Underwriter Company at 9 (10th ed. 2013)
("CGL Coverage Guide"). In this section,
we describe: (1) the structure and (2) the history and
development of CGL policies.
Structure of Standard-Form CGL Policies
CGL policies are drafted using standardized forms developed
by the Insurance Services Office, Inc. ("ISO"), an
association of insurance carriers. See Hartford Fire Ins.
Co. v. California, 509 U.S. 764, 772 (1993). ISO
maintains a large portfolio of "endorsements, "
language that can be used to amend a standard CGL policy to
suit the needs of the insured or insurer. CGL Coverage
Guide at 177. Policies that deviate from the standard
CGL policy forms and endorsements are called
"manuscript" policies. See Gabarick v. Laurin
Mar. (Am.), Inc., 650 F.3d 545, 554 (5th Cir. 2011)
(explaining that manuscript policies are tailored to the
unique coverage needs of the insured); Bangert Bros.
Const. Co. v. Americas Ins. Co., 66 F.3d 338, at *2
(10th Cir. 1995) (unpublished table decision).
basic structure of standard CGL policies mirrors the
three-part structure of the B&V-Aspen Policy described
above. CGL policies begin with the "basic insuring
agreement" defining the initial scope of coverage. An
insured cannot recover for property damages that fall outside
this definition. The basic insuring agreement is then subject
to exclusions, which narrow the scope of coverage. The
exclusions are then subject to exceptions, which restore
coverage-but only to the extent coverage was initially
included in the basic insuring agreement.
Basic insuring agreement
policies begin with a broad grant of coverage in the basic
insuring agreement. An "occurrence" triggers
coverage. CGL policies-including the Policy here-define an
"occurrence" as "an accident, including
continuous or repeated exposure to substantially the same
general harmful conditions." CGL Coverage
Guide, App. K: 2013 Claims-Made Form, at 558. Neither
the standard CGL policy nor the Policy in this case defines
the term "accident."
Exclusions-and exceptions to exclusions
scope of the basic insuring agreement for damages caused by
an "occurrence" is then limited by any exclusions
from coverage that the parties include in the policy. In
other words, a CGL policy starts with a broad grant of
coverage for damages arising from an "occurrence."
Exclusions narrow the scope of coverage. For example, CGL
policies generally exclude coverage for damages that the
insurer "expected or intended." See id. at
543. Exceptions to the exclusions may restore-but do not
The "Your Work" exclusion and
the standard-form CGL exclusions and its corresponding
exception is identical to the "Your Work" exclusion
and "subcontractor exception" in the Policy here.
See CGL Coverage Guide, App. K: 2013 Claims-Made
Form, at 547. In the standard-form CGL policy, this
exclusion is listed as "Exclusion L." Id.
In the Policy, it is listed as "Exclusion F." For
consistency, we refer to this provision as the "Your
the Policy and the standard-form CGL policy, the
"subcontractor exception" follows the "Your
Work" exclusion. This exception provides that the
"Your Work" exclusion "does not apply if the
damaged work or the work out of which the damage arises was