No Coverage For Known Construction Defects Ignored By Developer

Far Northwest Dev. Co., LLC v. Cmty. Ass’n of Underwriters of Am., Inc. et al., 2009 WL 1099158 (W.D. Wash. April 22, 2009)

Faramarz Ghoddoussi, the sole member of Far Northwest Development, LLC (“LLC”) which built and sold the Somerset Village Townhome Condominiums, admitted that he was aware of construction defects in several condominium units during the construction process. However, Ghoddoussi did not share that information with unit owners or the homeowners’ association (“HOA”), and he did not undertake a full scale investigation of the complex to determine whether the same problems existed in other units. The HOA brought action against the LLC, and Ghoddoussi individually, alleging in part that Ghoddoussi breached his fiduciary duties to the HOA by failing to fully investigate the defects during development, and as a result the condominiums suffered physical damage.

Ghoddoussi and the LLC tendered to their insurers for defense and indemnity. After the insurers denied coverage and indemnity, Ghoddoussi and the LLC initiated a declaratory judgment action. The insurers filed a motion for summary judgment, contending that there could be no coverage or indemnity because the harms alleged in the underlying lawsuit were “expected or intended” by Ghoddoussi.

The insurance policy specifically excluded “‘property damage’ expected or intended from the standpoint of the insured.” Furthermore, in granting the insurers’ motions for summary judgment, the court acknowledged that, even apart from the policy language, as a matter of insurance law “[t]here is never coverage where the harm is expected or intended.”

Ghoddoussi attempted to evade the exclusion by claiming that the damage was not “expected or intended” because he was unaware of any fiduciary duties and he lacked significant experience in construction. The court decisively rejected Ghoddoussi’s “self-serving testimony,” finding that the “expected or intended” exclusion negated any duty to defend or indemnify because Ghoddoussi was aware of the construction defects during the construction of the complex and, out of his own self-interest, failed to take action, thereby causing the damage.

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