Colorado Court Holds No Coverage for Breach of Contract Claim

In its recent decision in Ctr. For Excellence in Higher Ed., Inc. v. Travelers Prop. Cas. Co. of Am., 2018 U.S. Dist. LEXIS 25424 (D. Col. Feb. 16, 2018), the United States District Court for the District of Colorado had occasion to consider whether a breach of contract claim could qualify for coverage under a general liability policy.

Travelers’ insured, the Center for Excellence in Higher Education, was the lessee of a commercial property.  The lease required it to maintain the property in good order and specifically required it to maintain, repair, and if necessary replace, the building’s roof and HVAC system.  During the Center’s tenancy, the roof and HVAC system were damaged in a hailstorm.  The Center, however, did not undertake any efforts to repair or replace the damaged property.

The Center later sued the landlord for breaches of the lease wholly unrelated to the damaged property.  The landlord, however, counterclaimed against the Center for breach of contract based on the Center’s failure to have repaired the damage to the roof and HVAC system.  The Center sought coverage for the counterclaim under its general liability policy with Travelers and Travelers denied coverage on the basis that the counterclaim sought breach of contract damages only, and thus did not trigger its policy’s coverage.

In the ensuing coverage litigation, the Center conceded that breach of contract claims generally are not insured under general liability policies.  It nevertheless argued that the landlord’s allegations could have supported a tort claim based on accidental conduct and that as such, Travelers at least had a defense obligation.  The court disagreed, observing that to state a claim for negligence, the landlord would have needed to allege facts demonstrating that the Center had a duty to maintain and repair the roof that existed independent of the contract.  The court could find no such common law duty that would support a negligence claim, nor was any such duty alleged in the landlord’s pleading.  As such, the court agreed that Travelers had no defense or indemnity obligations for the counterclaim.