What happens when the owner inadvertently forgets to procure the policy and the contractor is facing a significant uninsured loss? This is exactly what happened in Frank Coluccio Construction Co., Inc. v. King County, 150 P.3d 1147 (Wash.App. 2007), which involved the construction of a utility tunnel under the Duwamish Waterway in the state of Washington.

Storm blows in

Coluccio hired a subcontractor to install an access shaft on the eastern end of the proposed tunnel, which consisted of 34 interlocking piles. After installation of the piles, Coluccio planned to dewater and excavate the shaft interior down approximately 60 ft. The subcontractor constructed 33 piles without incident, but while pouring concrete inside of Pile 8S, the tremie pipe became stuck in the concrete and could not be extracted. The subcontractor finished the concrete pour and left the tremie pipe embedded in the concrete.

As Coluccio was dewatering the shaft, a “blow-in” occurred and the shaft filled with water, soil and debris. Divers later discovered that Pile 8S and the two adjoining piles were damaged and the blow-in occurred in the damaged area. To remedy the problem, Coluccio was forced to freeze the ground around the shaft with liquid nitrogen.

Coluccio and its subcontractor filed a claim with King County. They soon learned, however, that the county had failed to procure a policy for the project as promised. In an attempt to avoid the consequences of its omission, the county informed Coluccio that a pre-existing general property damage policy the county possessed provided coverage equal to that which would have been provided by a project-specific builder’s risk policy. Accordingly, the county contended that it had complied with the contract insurance requirement. This was not the case, and in fact, when the county procured the general property damage policy, it had specifically requested that underground pipes, tunnels and structures be excluded from coverage so as to reduce the policy premium.

Meanwhile, the county purported to pass the claim on to the general property policy insurer and, not surprisingly, the insurer denied the claim. Coluccio filed suit against the county in response.

The court sided with Coluccio and ruled that the county had breached the contract by failing to procure a project-specific builder’s risk policy. The more difficult issue for the court was determining whether, despite the county’s breach, Coluccio was entitled to recover damages. In order to recover, Coluccio must show a builder’s risk policy would have covered its loss.

In the end, the court adopted an approach under which the county could avoid liability for damages only if it could prove that every insurance policy it could have purchased to satisfy its contractual obligations would have excluded the loss claimed by Coluccio. Since the exclusion in question—faulty workmanship—does not appear in all builder’s risk policies, Coluccio was allowed to recover.

Although Coluccio prevailed, this case highlights the difficulties a court will face in determining whether a policy that was never procured would have covered a loss. Accordingly, the outcome of a similar case is unpredictable. Contractors must ensure that owner-procured polices are actually in place at the outset of each project and should insist on receiving a copy for its files. Furthermore, since policy terms and exclusions differ from policy to policy, contractors must fully understand policy terms and should consider whether additional supplemental insurance is prudent.