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Posts Tagged ‘CGL’

Court of Appeals clarifies “Your Work” Exclusion in CGL

Posted on: October 30th, 2019

By: Robert Bazzo

A frequently litigated issue in the commercial general liability (CGL) policy is the extent and limits of the coverage for contractors under the definition of “Your Work” and related exclusions. Under the insurance laws in most states, defective workmanship alone is not considered an accident and, therefore, not “property damage” as the result of an “occurrence” within the standard CGL definition.

In a recent Massachusetts case, All America Ins. Co. vs. Lampasona Concrete Corp. et al., the trial court granted the insurance company’s motion for summary judgment based on a finding that the “Your Work” policy exclusion applied to the claim against the insured.

The underlying construction projects related to a new hospital’s concrete floor installation, 90,000 square feet at a cost of $30 million. As part of the construction project, the subcontractors had to install a flooring system for the first floor. This system consisted of a concrete slab (Lampasona’s work), installed over a plastic vapor barrier which was done by another subcontractor. The finished first floor of the hospital included flooring tile (attached with adhesive) and carpeting, installed by other subcontractors on top of the concrete slab.

After completion of the hospital, the owner complained to the general contractor that first-floor tiles had become loose, were “tenting” and “blistering” and that the liquid adhesive was leaking from underneath the flooring. The damage was allegedly related to excessive moisture migrating through the concrete slab. The claimed excessive moisture was allegedly caused by Lampasona’s installation (work product [or “Lampasona’s work”]), including (1) Puncturing the vapor barrier; (2) Improperly mixing fiber reinforcement into the concrete; and (3) Improperly curing the concrete.

Based on these allegations, the trial court found coverage for the occurrence to be barred by the “Your Work” exclusion [TO AVOID THE POSSIBLE READING THAT THE INSURING AGREEMENT DID NOT APPLY IN THE FIRST INSTANCE]. The trial court focused on the definition of “Occurrence” and the policy exclusion stating the insurance does not apply to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘Your Work’ was incorrectly performed on it.” In the judge’s opinion, Lampasona’s work applied to the entire flooring structure because it was an “integral and inseparable part” of the construction of the flooring surface. Although the flooring surface consisted of several different layers, only one of which was placed by Lampanosa, together they constituted “one completed product: Interior flooring for the first floor” of the hospital.

On appeal, the court found that the “Your Work” exclusion did not apply. The appeals court agreed that a CGL policy does not provide coverage for faulty workmanship that damages only the insured’s work product. However, the policy does provide coverage if the faulty workmanship causes property damage to something other than the insured’s work product. The appellate judges determined that the trial court did not properly differentiate between Lampasona’s work and the work of the other subcontractors. It was not wrong to conclude that the vapor barrier, concrete slab, and floor tiles or carpeting could be characterized as layers of an integrated flooring system. However, just because the separate parts made up one system does not mean that the exclusion applied. Instead, said the appeals court, “Where Lampasona was hired to install one layer of the flooring system but caused discrete damage to the other layers, that damage falls outside the . . . exclusion.”

If you have any questions or would like more information, please contact Robert Bazzo at [email protected].

A Holly(cal) Jolly (Almost) Christmas

Posted on: December 28th, 2018

By: Zach Moura

In what is sure to be the beginning of a slew of cases litigating coverage for injuries caused by drones, the U.S. District Court for the Central District of California recently issued an opinion denying coverage under an aircraft exclusion in the drone operator’s Commercial General Liability (CGL) policy. Philadelphia Indemnity Insurance Company v. Hollycal Production, Inc., et al., 5:18-cv-00768.

The accident at issue occurred when Hollycal Production (“Hollycal”) used a drone to photograph an event. The drone collided with one of the attendees, Darshan Kamboj, blinding her in one eye. Ms. Kamboj subsequently filed suit against Hollycal, its owner, and the Hollycal employee that operated the drone. Hollycal tendered the defense of the suit to Philadelphia Indemnity Insurance Company (“Philadelphia”) under the CGL policy on which Hollycal was an additional insured. Philadelphia agreed to defend Hollycal under a reservation of rights, and then filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify Hollycal for the Kamboj suit.

Philadelphia moved for summary judgment, in part on the basis that the Aircraft exclusion in the Policy excluded coverage in pertinent part for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” Because “aircraft” was not a defined term in the policy, the Court looked to the Merriam-Webster’s Collegiate Dictionary definition of the word, along with the definition included in 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1. The Court concluded that a “drone … is an aircraft under the term’s ordinary and plain definition.” Accordingly, the Court found that the Kamboj suit was excluded from coverage and Philadelphia had no duty to defend or indemnify Hollycal.

Drone operators will need to carefully review their insurance and ensure that they have appropriate coverage in place for their drone operations. As this matter makes clear, and as reinforced by recent reports of a drone striking the nose of an Aeromexico plane, an October near-miss of a drone by a passenger plane near London Heathrow, and the shutdown of London Gatwick airport last week because of suspected drone activity, there is substantial exposure arising from drone operations. Without the right insurance, operators may be left disastrously exposed.

If you have any questions or would like more information, please contact Zach Moura at [email protected].

“Occurrence” v. “Offense:” Understanding the Trigger of Coverage Under the Standard CGL Policy

Posted on: June 28th, 2016

By:  Mandy Proctor

It is commonly understood in the insurance industry that the standard CGL policy provides coverage for bodily injury and property damage, which is caused by an “occurrence” resulting in loss during the policy period, as well as personal and advertising injury caused by an “offense” committed during the policy period.  “Occurrence” in this context means an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  An “offense,” by contrast, generally connotes an intentional act.  The standard CGL policy defines seven specific “offenses,” which fall within the grant of coverage, including, among others, false arrest, detention, or imprisonment, malicious prosecution, and oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.

These two acts—the occurrence and the offense—are critical to understanding the trigger of coverage under the standard CGL policy, but the significance of when these acts transpire is often misunderstood by both courts and practitioners alike.  Specifically, with respect to coverage for bodily injury and property damage caused by “occurrence,” some mistakenly believe that it is the “occurrence” that must take place during the policy period to trigger coverage.  On the contrary, it is the actual bodily injury or property damage—not the event that caused it—that triggers coverage.  The confusion arises in part because, as a practical matter, the “occurrence” and the damage generally occur at the same time.  But consider the following hypothetical: A roofing company replaces a roof in 2005.  A year later, water leaks through the roof because the roof was improperly installed, causing property damage in the attic.  If the roofing company is insured under a standard CGL policy in 2006, the property damage would trigger coverage under that subsequent policy, even though the “occurrence” that caused it occurred a year earlier.  By contrast, coverage for personal and advertising injury is only triggered if the offense causing the injury is committed during the policy period.  The distinction, though seemingly minute, bears repeating as it can have far-reaching implications.

Construction Defects Can In Fact Be Accidents

Posted on: July 24th, 2013

By: Jonathan Kandel  

The Supreme Court of Georgia has further clarified the scope of coverage for construction defect claims under commercial general liability (CGL) insurance policies.  In Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Company, No. S13Q0462 (Ga. July 12, 2013), the court clarified that a construction defect claim constitutes an “occurrence,” as defined in a standard CGL policy, when the only damage alleged is to the work of the insured contractor.  While the court’s decision does not change the substantive scope of insurance coverage for construction defect claims, it shifts the focus of coverage.

In Taylor, a home builder’s insurance company filed a declaratory judgment action, seeking a declaration that there was no coverage for a class action lawsuit filed against the home builder.  The insured home builder had been sued by numerous homeowners, alleging that they suffered property damage to their houses, including water intrusion, cracked concrete slabs, and broken floors, due to the home builder’s alleged failure to include sufficient gravel under the homes’ foundations.  On appeal of the declaratory judgment action, the U.S. Court of Appeals for the Eleventh Circuit asked the Supreme Court of Georgia to clarify whether Georgia law requires damage to property other than the insured’s completed work for an “occurrence” to exist.  The Eleventh Circuit’s request appears to be based on the Supreme Court of Georgia’s decision in American Empire Surplus Lines Insurance Company v. Hathaway Development Company, 288 Ga. 749, 707 S.E.2d 369 (2011), which held that “an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property.”

The Supreme Court analyzed the usual and common meaning of “accident” – the operative term in the definition of “occurrence” – and concluded that the term refers to whether an event was intended or expected, not the nature or extent of the injury caused by the event or the identity of the person injured.  Based on its conclusion, the court held that an “occurrence,” as defined in a standard CGL policy, “does not require damage to the property or work of someone other than the insured.”

Recognizing that CGL coverage is not intended to insure against liabilities for the repair or correction of the insured’s faulty workmanship, the court explained that other provisions in a standard CGL policy account for that limitation.  For example, the court explained that coverage under a standard CGL policy is trigged by an “occurrence” that causes “property damage,” and a claim for the repair or replacement of faulty workmanship usually will not be for “property damage.”  The court also noted that claims for faulty workmanship may fall within the scope of certain “business risk” exclusions.

Finally, the court addressed whether the legal theory (or claim) asserted impacts the “occurrence” analysis.  Prior to Taylor, many Georgia courts found that there was no coverage when the only claim asserted against the insured was for breach of contract (not negligence).  The Supreme Court concluded that the legal theory (or claim) asserted usually will not determine whether the incident constitutes an “occurrence,” with one notable exception.  That being, when a “theory of liability is absolutely and necessarily inconsistent with the notion of an ‘accident’ – that is, when the theory of liability and the idea of an ‘accident’ are mutually exclusive – a claim premised upon such a theory of liability” cannot possibly constitute an “occurrence.”  The court identified fraud claims as an example of a theory of liability that is necessarily inconsistent with meaning of “accident.”   Moving forward, the availability of insurance coverage for construction defect claims will turn on whether there is “property damage,” as defined in a standard CGL policy, and whether exclusions to coverage apply.  The court’s decision brings Georgia law in line with the strong recent trend in other jurisdictions, including Florida, Maryland, South Carolina, Texas, and Virginia, among others.