Insurance Law

No Cover for Incorrectly Performed Work: Insurance is Not a Guarantee of Good Workmanship

Contractors and developers purchase insurance to protect against bodily injury or property damage caused by their negligence. It does not, nor could it do so and still be insurance, guarantee the quality of workmanship of the insured. The policies clearly exclude damages arising out of work performed by the insureds or their contractors or subcontractors, and work that had to be restored, repaired, or replaced because it was incorrectly performed. If such could be insured a contractor need only do a bad job for little money and then require its insurer to do the job right.

The state of New York’s appellate courts are famous for writing opinions that get to the point quickly and without a great deal of surplusage. The decision in Erie Ins. Co. v. Nick Radtke, Inc., — N.Y.S.3d —-, 2015 N.Y. App. Div. LEXIS 1907 (N.Y.A.D. 2 Dept., 3/11/15), [enhanced version available to lexis.com subscribers], is a perfect example of that fact by looking at the trial court opinion, stating the law of the case, and ruling in less than a page.

In a suit seeking a judgment declaring that the plaintiff is not obligated to defend or indemnify the defendant Nick Radtke, Incorporated, in an underlying action entitled Vela v S.E. Home Builders, Inc., pending in the Supreme Court, Orange County, New York, and a third-party action for a judgment declaring that the third-party defendants are obligated to indemnify the defendants S.E. Home Builders, Inc., and Joseph Radtke in the same underlying action, the insured appealed from a judgment of the Supreme Court, Orange County which declared that (1) the plaintiff is not obligated to defend, indemnify, or otherwise provide insurance coverage for the defendant Nick Radtke, Incorporated or any other person or entity for claims against the defendant Nick Radtke, Incorporated in the underlying action, and (2) the third-party defendants are not obligated to defend, indemnify, or otherwise provide coverage for or to the defendant S.E. Home Builders, Inc., or any other person for claims against the defendants S.E. Home Builders, Inc., or Joseph Radtke in the underlying action.

DECISION & ORDER

Michael Vela commenced an action (hereinafter the underlying action) against, among others, S.E. Home Builders, Inc., Joseph Radtke, and Nick Radtke, Incorporated, to recover damages arising from a home construction project. The plaintiff, Erie Insurance Company, then commenced this action seeking a judgment declaring that it is not obligated to defend or indemnify its insured, Radtke in the underlying action. Vela then commenced a third-party action against Essex Insurance Company, Inc., and Markel Services, Incorporated, seeking a judgment declaring that they are obligated to defend and indemnify their insureds, S.E. Home Builders, Inc., and Joseph Radtke, in the underlying action.

On their respective motions for summary judgment, the plaintiff and the insurers each established their prima facie entitlement to judgment as a matter of law declaring that they are not obligated to defend and indemnify their respective insureds in the underlying action by submitting the subject insurance policies.

These polices established, prima facie, that Vela’s claim of coverage was excluded under exclusion (2)(j)(5), which applies to damages arising out of work performed by the insureds or their contractors or subcontractors, and exclusion (2)(j)(6), which applies to work that had to be restored, repaired, or replaced because it was incorrectly performed. Vela failed to raise a triable issue of fact. Therefore, the Supreme Court (trial court) properly granted summary judgment to the insurers, denied summary judgment to Vela, and entered a judgment making the appropriate declarations.

ZALMA OPINION

As I have said many times in this place insurance is a contract that agrees to indemnify the insured for damages resulting from a contingent or unknown event. When a contractor does a bad job that requires restoration, repair or replacement of the work because it was incorrectly performed it is not contingent or unknown and it is clearly and unambiguously excluded.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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