National Union is fighting to avoid paying nearly $15 million tied to a faulty fire sprinkler job at Las Vegas' Encore Hotel & Casino.
The carrier took its case to federal court in California on April 22, asking a judge to declare that its umbrella policy does not cover the Nevada judgment sitting on the books against Continental Fire Sprinkler Company. The coverage questions at the center of the filing are ones construction insurers deal with often.
The story, as National Union tells it, starts in 2007. Tutor-Saliba Corporation, the general contractor on the Encore project and the named insured on the umbrella policy, hired Continental to design and install the hotel's sprinkler systems. The Encore opened its doors in December 2008. About two and a half years later, in June 2011, a coupling leak sprang in the low-rise section of the property.
That leak, National Union says, was the thread that unraveled the job. Inspections allegedly showed that some of the Victaulic couplings Continental had installed did not match the manufacturer's specifications. Tutor-Saliba brought in Desert Fire Protection to tear into the system and fix it, work that the filing says stretched from late 2011 into 2016.
Tutor-Saliba sued Continental in Nevada in 2013. After a 48-day bench trial, a trip to the Nevada Supreme Court, and a remand, the trial court ultimately awarded Tutor-Saliba $5,146,501.70 in damages, assessed jointly and severally against Continental and its surety, Travelers. The Nevada Supreme Court signed off on that number in January, and later affirmed another $5,457,623.94 in attorney's fees, $4,139,197.37 in prejudgment interest, and $167,835.02 in taxable costs. Post-judgment interest is ticking at $1,445.25 a day.
The coverage positions take center stage from there. National Union says the award is really just the cost of redoing defective subcontractor work - and that, it argues, is not "Property Damage" caused by an "Occurrence" under its policy. The policy defines property damage as "physical injury to tangible property, including all resulting loss of use of that property; or loss of use of tangible property that is not physically injured." Occurrence is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The carrier also leans on a stack of familiar exclusions: contractual liability, damage to impaired property, damage to property, damage to the insured's product, damage to the insured's work, recall, and a professional liability endorsement that bars coverage for any "act, error, omission, malpractice or mistake of a professional nature."
On tender, National Union says Continental first turned to American Home Assurance Company in 2013 under a wrap-up policy. Once that policy was burned through by unrelated claims in August 2018, National Union picked up the defense under a reservation of rights and, it says, has been asking for proof of covered property damage ever since.
The carrier is also asking the court to say it owes nothing toward the attorney's fees award.
The allegations have not been tested in court, Continental has not yet responded, and no judge has ruled.
