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The title of this article tells you how I feel about the continuous barrage of decisions addressing coverage for construction defects – in particular whether faulty workmanship constitutes an “occurrence” under a commercial general liability policy. I’m not saying that these cases are not important. Of course they are – both for the parties involved and the development of the body of law on such issue for that particular state. But such cases have become so abundant that it has become difficult to find something unique about them – something that makes them worthwhile to take note. At their core these cases generally apply the same legal issues to similar facts.
The New York Supreme Court, Appellate Division, just issued a decision involving coverage for construction defects. While the facts offer nothing out of the ordinary, the decision falls into the category of worthwhile.
At issue in National Union Fire Ins. Co. v. Turner Construction Company, No. 11927 (N.Y. App. Div. May 15, 2014), [enhanced version available to lexis.com subscribers], was coverage for Turner Construction and a subcontractor, under a National Union wrap-up policy, for damages caused when the exterior wall of an office building, under construction in Jersey City, fell from the eighth story.
On one hand, the decision reaches a decision, rightly or wrongly, that is based on the analysis that we are all used to seeing in a case such as this. In concluding that no coverage was owed, the court made such statements as the following:
“Under both New York and New Jersey law, construction defects such as those asserted in the underlying action—faulty design, fabrication or installation—do not constitute ‘occurrences’ under a commercial general liability insurance policy (citations omitted). The general rule is that a commercial general liability insurance policy does not afford coverage for breach of contract, breach of fiduciary duty, or breach of warranty, but rather for bodily injury and property damage (citations omitted).”
“There is no ‘occurrence’ under a commercial general liability policy where faulty construction only damages the insured's own work, and faulty workmanship by subcontractors hired by the insured does not constitute covered property damage caused by an ‘occurrence’ for purposes of coverage under commercial liability insurance policies issued to the general contractor, since the entire project is the general contractor’s work.” (citations omitted).
Even if Turner and its subcontractor agreed with these conclusions – and I’m sure they didn’t – they argued that an expanded definition of “occurrence” in the policy dictated a different outcome. In just about every construction defect coverage case the court is confronted with the following definition of “occurrence:” “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” However, the National Union wrap-up policy at issue defined “occurrence” as “an accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”
As you would expect, Turner and its subcontractor argued that the expansion of the definition of occurrence, to include “an accident, event, or happening,” gave rise to coverage for the claims against them, “or, at least, that the amended definition of ‘occurrence’ in the policy is ambiguous.”
The court disagreed and held “that the motion court was correct in concluding that the negotiated amendment of the definition of ‘occurrence’ in the subject commercial liability policies to include the words ‘event, or happening’ along with the word ‘accident’ did not expand the definition so as to encompass faulty workmanship.” Further, the court stated: “[T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an ‘accident’ or ‘occurrence’. As the motion court recognized, the addition of ‘event’ or ‘happening’ to the definition of ‘occurrence’ did not alter the legal requirement that the ‘occurrence’ triggering the coverage must be fortuitous. [T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an ‘accident’ or ‘occurrence.’” (citations omitted).My sense is that policyholder lawyers are surprised by this decision – and perhaps have even stronger emotions than that in response to it. For once such example see Carl Salisbury’s post on the Kilpatrick Townsend “Global Insurance Recovery Blog.”
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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