Kaady v. Mid-Continent Cas. Co.

Under a known-loss provision of a contract, property damage would only be covered if the insured did not know the property damages occurred in whole or in part.

Randy Kaady, a mason, installed manufactured stone for Collins Lake Resort (“Collins Lake”), a multi-unit residential project. Within four months, Kaady was called back to Collins Lake to inspect cracks in the manufactured stone. Three months after Kaady inspected the cracks, he obtained a one-year insurance policy from Mid-Continent Casualty Company (“Mid-Continent”). Almost one year after the construction was completed, the Collins Lake Homeowners’ Association sued the developer of the project, and all others in privity, which included Kaady, for defective workmanship evidenced by the damage to the structures. The district court granted summary judgment to Mid-Continent after finding the known-loss provision in Kaady’s policy. On appeal, the Ninth Circuit reviewed the known-loss provision found in general liability commercial contracts. Specifically, the panel resolved the issue of whether Kaady’s prior knowledge of the cracks in the manufactured stone automatically barred his coverage of damage to the structure as was defined in Mid-Continent’s policy. Under the known-loss provision, property damage would be covered if the insured did not know of the property damage. The panel found that although the Kaady knew about the cracks before he obtained insurance, this was not sufficient evidence to support a finding that he knew about the property damage to the structural condition. Furthermore, although the cracks permitted water intrusion and further structural damage, Mid-Continental carried the burden of proving Kaady’s knowledge of these and other resulting structural damages. Thus, summary judgment was inappropriate for the foregoing reasons. REVERSED AND REMANDED.