The Ninth Circuit reversed the district court's award of summary judgment to the insurer after analyzing the known loss provision in the insured subcontractor's policy. Kaady v. Mid-Continent Cas. Co., 2015 U.S. App. LEXIS 10754 (9th Cir. June 25, 2015). The insured was awarded a subcontract to install manufactured stone at the residential project. The stone was affixed to the wall sheathing. The insured also wrapped deck posts with manufactured stone and installed masonry caps on the toe of the stone that was wrapped around the deck posts. After construction was completed, the insured was called back to the project to inspect cracks in the manufactured stone and masonry caps he installed. The insured told the general contractor that the cracks were likely due to settling. Three months after inspecting the cracks, the insured purchased a CGL policy from Mid-Continent. The subcontractor was sued by the homeowners. He settled the claims and tendered for indemnification from Mid-Continent. The claim was denied, and the insured sued. The insured claimed that the damage to the structures for which he was sued - deterioration of the deck posts and wall sheathing behind the manufactured stone - was "property damage" covered by the policy. The district court, however, awarded summary judgment to Mid-Continent based upon the known-loss provision. This provision stated the policy applied to "'property damage' . . . only if not insured knew that the 'property damage' had occurred." On appeal, the insured admitted that he was aware of cracks in the manufactured stone and masonry caps he installed before he purchased the policy, but he did not know about any of the damage for which he sought indemnity - the damage to the deck posts and wall sheathing behind the masonry. Mid-Continent argued that, so long as the insured knew about any damage to a structure, the known-loss provision barred coverage of any other damage to the same structure. The Ninth Circuit was unpersuaded, however, that it should not treat components the insured provided and components provided by others as separate"property." Once the insured's work was complete, the policy covered damage to property provided by others, including property that the insured's work was "performed on," but it did not cover damage to the insured's own work product. Mid-Continent offered no reason to treat the insured's work and the work of others as different property in every provision of the policy except the known-loss provision. Therefore, the court ruled that the known-loss provision also distinguished between them. The insured's knowledge of damage to his own work did not automatically constitute knowledge of damage to the components of the structure furnished by others. Therefore, the insured's knowledge of cracks in the masonry before he bought the policy did not constitute knowledge of the claimed "property damage" as to the structural components. Not only were the wooden deck posts and wall sheathing different "property" than the manufactured stone and masonry caps, the claimed damage was of a different type. If the cracks in the masonry allowed water to seep in and damage the wood beneath, then the claimed damage might be considered a "continuation, change or resumption" of the cracks. But the evidence in the record did not include any evidence connecting the cracks in the masonry that the insured observed before he purchased the policy to the damage to the wooden components for which the insured claimed coverage.
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