U.S. District Court Rules on “Your Work” Exclusion

A U.S. District Court in Florida recently found that the “Your Work” exclusion in a CGL policy barred coverage for a contractor and developer of a condominium project where the only property damage alleged as a result of the insured’s defective and deficient work was to other portions of the insured’s work.

The insurer, Evanston Insurance Company, sought a declaration that it had no duty to defend or indemnify its insured, DiMucci Development Corp. of Ponce Inlet, Inc.  DiMucci constructed a 132 unit condominium complex, the Towers Grande, in Volusia County Florida.  DiMucci acted as the owner, builder, developer, and seller of the Towers Grande.

In 2012, subsequent to the completion of the project, the Towers Grande Condominium Association filed a construction defect case against DiMucci in state court in Florida, alleging, among other things, defects and deficiencies in the roof, exhaust pipe, HVAC system, and water intrusion and other decking/structural issues at the condominium complex.  The underlying complaint also brought claims against DiMucci’s roofing subcontractor, who performed roofing work at the site.  The complaint asserted claims for negligence, breach of implied warranties, and violations of Florida Building Code.

After determining that Florida law applied to the action before it, the District Court first looked at whether or not the underlying complaint alleged an “occurrence” and “property damage,” which would trigger Evanston’s duty to defend under the policies.  The court held that there were sufficient allegations of an “occurrence” under the policy because DiMucci neither expected nor intended structural damage to the property caused by the alleged defects.  The court also held that there were sufficient allegations of “property damage” under the complaint, because DiMucci’s allegedly defective work damaged otherwise non-defective portions of the Towers Grande.

The District Court went on, however, to analyze whether coverage for the alleged damages was excluded pursuant to the “Your Work” exclusion in the policy.  In holding that the “Your Work” exclusion barred coverage, the court noted that DiMucci’s work at the project encompassed the entire project, with the exception of the roof.  The court held that because the allegations of the underlying complaint alleged only that DiMucci’s defective work on a portion of the project resulted in damage to other parts of the project also constructed by DiMucci, the “Your Work” exclusion barred coverage and Evanston had no duty to defend the underlying complaint.  The court distinguished the situation before it from a situation where an insured’s defective work causes damage to other portions of a project that were not constructed by the insured.

The District Court’s interpretation of the “Your Work” exclusion is similar to interpretations by South Carolina’s courts.  The case also highlights the importance of understanding the effect that “Your Work” and other “business risk” exclusions may have on coverage in a given case.

The case is Evanston Insurance Company v. DiMucci Development Corp. of Ponce Inlet, Inc., case no. 6:15-cv-486-Orl-37DAB, in the U.S. District Court for the Middle District of Florida.  Please contact us if you would like a copy of the order or would like to discuss the case further.


First Circuit, Souter Grant Coverage despite Exclusion

Former Associate Justice of the Supreme Court David Souter returned to his First Circuit roots and participated in an August 2015 ruling declining to uphold a policy exclusion where the injured person was employed by a contractor with no written contractual relationship to the insured. The court’s rationale was the term “contractor” is ambiguous and the ambiguity should be construed against the insurer.

In July 2009, homeowners hired general contractor Benchmark Construction Services, Inc. to renovate their home in Massachusetts. The homeowners hired architect Thomas Huth to design the renovation plans. Huth hired Sara Egan d/b/a Painted Design to do some decorative painting to one of the interior walls of the home. Egan sent her employee, Meghan Bailey, to the perform the painting work. Benchmark did not have a written contractual relationship with Huth (architect), Egan (painter), or Bailey (painter’s employee). On March 5, 2010, while Bailey was applying decorative paint, she fell from a ladder that was standing on top scaffolding allegedly erected by Benchmark.

Bailey sued Benchmark in the Massachusetts Superior Court, alleging she was injured in the fall, Benchmark owed her a duty of care, and Benchmark negligently erected and maintained the ladder and scaffolding. Benchmark sought defense from its insurer, United States Liability Insurance Company (“USLIC”) but USLIC determined Bailey’s claims were not covered under Benchmark’s insurance policy. According to USLIC, an endorsement to the policy specifically excluded Bailey’s injuries from coverage. Therefore, USLIC has no duty to defend or indemnify Benchmark against those claims.

USLIC won on summary judgment, with the district court finding the endorsement to be “unambiguous.” Bailey’s claims were not entitled to indemnity because of a policy endorsement excluding coverage for employees of contractors and subcontractors injured while performing services. The district court said the term “contractor,” which was undefined in the policy, meant “anyone with a contract” and coverage for Bailey’s claims was excluded as her employer had contracted to do painting work.

The panel, including Souter, disagreed with the district court. Finding that “reasonably intelligent people” could differ regarding the meaning. “Anyone with a contract is surely a reasonable definition of the word ‘contractor,’ as the district court found, but so is a more narrow definition focused on the contractual relationship of the injured party and the insured.”

The court determined when disputed terms are “susceptible to multiple reasonable definitions, then the court will apply a reasonable definition that confers coverage, if one exists.” Ultimately concluding USLIC had a duty to defend and indemnify Benchmark in the underlying negligence suit.

The holding could be problematic to insurers because the court granted coverage to an injured party employed by any contractor or subcontractor on the project despite no contractual privity with the insured.

The case is U.S. Liab. Ins. Co. v. Benchmark Const. Servs., Inc., 797 F.3d 116 (1st Cir. 2015). Please contact us if you would like a copy of the case or have any questions.

Insurer Owes Builder Partial Coverage for $55 Million Judgment.

An insurer who denied coverage in a case which resulted in a $55 million judgment found itself on the losing end of an order in the coverage action related to that judgment. Last week South Carolina District Court Judge Richard Gergel found against Crum & Forster, ordering it to pay $2 million of a $55 million judgment to its insured, Creekstone Builders, Inc., a Texas entity. Judge Gergel also ruled that a jury will be allowed to decide whether Creekstone’s insurer is liable for bad faith. Creekstone SC I, LLC a South Carolina company, performed a renovation to the East Bridge Lofts between 2004 and 2006. Between June 2006 and August 2010 Crum & Forster issued CGL policies to Creekstone Builders and Creekstone SC. However the policies included an exclusion for work in South Carolina.

In the underlying action, East Bridge Lofts POA filed suit against Creekstone SC in Charleston County Circuit Court. When the case went to trial the jury found developers East Bridge Lofts LLC and the Creekstone entities guilty of negligence, breach of warranty, breach of fiduciary duty, unfair trade practices and reckless negligence claims. According to federal filings, Creekstone’s carrier, Crum & Forster, did not participate in the underlying suit other than to attend mediation where it is alleged that they failed to make a meaningful offer. Following the $55 million judgment East Bridge and both Creekstone entities brought an action in federal court for bad faith and breach of contract against Crum & Forster. A subsequent pleading added a claim for reformation of the policies. Monday’s ruling reflects the Court’s answer to cross motions for summary judgment.

In the coverage action Crum & Forster argued that Creekstone was repeatedly warned of the exclusion for work in South Carolina and that Creekstone could have done work in other states which would have been covered under the policy. Further, Crum & Forster argued that Creekstone SC was dormant when the policies were issued. Judge Gergel found that excluding coverage for work in South Carolina while insuring a South Carolina corporation which was licensed only to do business in South Carolina created an ambiguity which must be resolved in favor if the insured, thereby ordering Crum & Forster to pay its $2 million in policy limits. But the case is not over. The Judge also ruled that the outstanding Bad Faith claims are issues of fact for the jury. Thus, whether Crum & Forster will ultimately be held responsible for the entire $55 million remains to be seen.

Southern District Grants Summary Judgment To Insurer Where Policy Expressly Excluded Coverage For Its Volunteer Workers

The Southern District recently issued an Order granting summary judgment to an insurance carrier because its policy unambiguously excluded coverage for bodily injuries arising out of the use of any vehicle operated by a “volunteer worker.”  McKeel v. Auto-Owners Insurance Co., 2015 WL 1333998 (S.D.Ga. March 24, 2015).

In McKeel, Plaintiff was involved in a motor vehicle accident when Cuong Nguyen improperly turned into the path of her vehicle.  Plaintiff, who was pregnant at the time, suffered injuries in the accident and prematurely delivered her baby.  Unfortunately, the baby died due to the injuries sustained in the accident.  At the time of the accident, Nguyen was a “volunteer worker” of Limelight Bar and Grill, LLC, which was owned by Nguyen’s brother.

Limelight was insured under a commercial general liability policy issued by Auto-Owners that provided bodily injury liability limits in the amount of $1,000,000.  Auto-Owners denied Plaintiffs’ demand for the policy limits because the policy excluded bodily injuries that arose out of the use of an automobile.

Plaintiffs filed a personal injury suit in the State Court of Bryan County and obtained a verdict against Nguyen in excess of $3,000,000.  Nguyen assigned his interest in any claim he may have against Auto-Owners to Plaintiffs.  Plaintiffs then filed a declaratory judgment action to determine if “the insurance policy at issue covers the events giving rise to the underlying lawsuits.”  Auto-Owners filed a counter-claim for declaratory judgment to determine that it has “no obligation to make payment for any amount relating to the [Plaintiffs’] judgment for damages obtained by them in the Underlying Liability Lawsuit.”  Following discovery, Auto-Owners filed summary judgment arguing that Plaintiffs’ claims are unambiguously excluded by the policy.

The policy contains an exclusion that expressly excludes “’[b]odily 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.”  The Court determined that based on this clear and unequivocal language, the policy does not provide coverage for any bodily injury that is based on the use of a vehicle operated by an insured.

The issue, then, was whether Nguyen was an insured under the Auto-Owners policy.  The policy defined insureds to include “‘volunteer workers’ only while performing duties related to the conduct of your business.”  It was undisputed that Nguyen was a “volunteer worker” at the time of the accident.  The Court concluded that Nguyen was an insured under the terms of the policy.

Because the policy expressly excluded coverage for bodily injury arising out of the use of any vehicle operated by an insured, the Court granted Auto-Owners summary judgment and found that the policy did not provide coverage for the injuries claimed by Plaintiffs in the underlying lawsuit.

South Carolina Supreme Court construes “performing operations” in CGL exclusion (j)(5), holds coverage excluded for damage caused by subcontractor notwithstanding completion of insured’s work

In Bennett & Bennett Construction, Inc. v. Auto Owners Insurance Company, 2013 WL 3723214, Opinion No. 27284 (July 17, 2013), the


court held that exclusions (j)(5) and (n) barred coverage for damage caused by a subcontractor after the insured’s work was complete. In Bennett, the general contractor filed a declaratory judgment action against its subcontractor’s insurer seeking coverage for damage caused by improper cleaning of a brick face. The insured installed the brick, then hired a subcontractor to clean the brick face after the work was complete. The damage caused by improper cleaning required all the brick work to be removed and replaced.

At issue were two exclusions, (j)(5) and (n), both of which the court found applicable. In construing (j)(5), which excludes coverage for “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations[,]” the court found the dispositive question to be whether the subcontractor was “performing operations.” The court referred to plain and ordinary meaning of the term and held there was no question that the damage occurred while the subcontractor was performing operations. The court found the exclusion applied notwithstanding that “your work” was complete when the damage occurred, and in doing so, recognized that the issue of when “your work” is complete is only relevant to products completed operations hazard coverage.

Although exclusion (j)(5) was dispositive, the Bennett court added that because the claim was for damage to defective workmanship itself, exclusion (n) likewise barred coverage. The Bennett court found that the cost of removing and replacing the brick was akin to the cost of removing and replacing defectively installed stucco, which the court previously found to be within the scope of exclusion (n) in Auto Owners Ins. Co., Inc. v. Newman, 684 S.E.2d 541, 546 (S.C. 2009). As inNewman, the insured’s work in Bennett  “was replaced because of a deficiency or inadequacy in it, and coverage is barred under exclusion n.”

The Bennett court concluded by reiterating the type of coverage that CGL policies are intended to provide:

As we have repeatedly explained, a CGL policy does not insure the insured’s work itself but consequential risks that stem from the insured’s work. CGL coverage is for tort liability for injury to persons and damage to other property and not for contractual liability of the insured for economic loss because the completed work is not that for which the damaged person bargained.

When “a subcontractor acting on behalf of the insured directly damages the insured’s work product, necessitating its removal and replacement[,]  the plain language of exclusions j(5) and n each independently exclude coverage.”

Georgia Court of Appeals Finds Exclusion Unambiguous in Pizza Delivery Case

pizza carFor years, Georgia courts have wrestled with the issue of whether exclusions, typically contained in auto liability insurance policies, that preclude coverage for damages arising when an automobile is being used to carry persons or property “for a fee” are ambiguous.  In many cases, especially in the context of food delivery, the courts in this State, as well as in the majority of other jurisdictions, ruled that such exclusions were ambiguous because it was unclear whether the phrase “for a fee” referred to the driver’s receipt of any kind of payment in return for transporting the property from any source or whether it meant a specific payment made to the insured for a particular act of transporting property; See e.g. First Georgia Insurance Co .v. Goodrum, 187 Ga. App. 314 (1988);Prudential Property & Cas. Ins. Co. v. Sartno, 588 Pa. 205, 903 A.2d 1170 (2006);United States Fidelity & Guaranty. Co. v. Lightning Rod Mut. Ins. Co., 80 Ohio St.3d 584, 586, 687 N.E.2d 717 (1997); Progressive Cas. Ins. Co. v. Metcalf, 501 N.W.2d 690, 692 (Minn.App.1993); RPM Pizza v. Automotive Cas. Ins. Co., 601 So.2d 1366, 1368–1369 (La.1992); Pizza Hut of America v. West Gen. Ins. Co., 36 Ark.App. 16, 21, 816 S.W.2d 638 (1991).

However, in a case of first impression, the Georgia Court of Appeals appears to have reversed course.  In Progressive Premier Ins. Co. of Illinois v. Newell, the court considered whether Progressive’s policy excluded coverage for damages arising from the use of the insured auto when it was being used to transport persons or property “for compensation or a fee.”  At the time of the accident, Progressive’s insured Newell was delivering a pizza for his employer, Papa John’s, when he collided with another vehicle.  Papa John’s paid Newell $4.00 per hour plus $1.20 “per house” when he was making deliveries and $7.25 an hour when he was working inside the store.

The Court first considered the litany of cases addressing the “for a fee” exclusion and found that, like Georgia, most jurisdictions have ruled that such exclusions are ambiguous and unenforceable; however, the court also noted that the specific exclusion in question in Newell was slightly different in that it purported to exclude coverage for damages arising from the use of an auto while being used to transport persons or property “for compensation or for a fee.”  As the court explained, “[t]he few courts that have addressed this newer exclusion  in the context of pizza delivery found the addition of the word “compensation” significant and concluded that the exclusion unambiguously applied to the particular facts of the case before them.”

The court reasoned that because “Newell was paid a different hourly wage while delivering pizzas and that he received a per delivery payment of $1.20. . . . the exclusion unambiguously applies to the accident at issue in Progressive’s petition for declaratory judgment.”  Accordingly, the Georgia Court of Appeals reversed the entry of summary judgment in favor of Newell.  The court was also careful to warn that because of “the potential for absurd results that could result from a broad application of our holding in this case to one involving a different factual scenario. . . . our holding in this case should not be expanded beyond the particular facts and circumstances now before us.”

Precisely how narrowly this ruling will be applied is yet to be determined.  For now, at least, it appears that insurers of automobiles that are being used to carry pizzas “for compensation or a fee” can reasonably rely on this holding in making coverage determinations.

Coverage Expands to Design and Engineering Defects under Master Liability Policy

fine printIn affirming summary judgment for the insured in Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp. the Georgia Court of Appeals relied upon the adage that the scope of coverage is broad.  The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”).  Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP.

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  When AGCO sued, Warranty Specialists and Cassidy Davis defended the suit on the basis that neither the EPP nor the master policy insured the wheel motor failure because the failure was caused by a design or engineering defect and not due to a mechanical breakdown caused by manufacturing defects in workmanship or materials.

The Georgia Court of Appeals affirmed the trial court’s grant of summary judgment to AGCO.  The Appellate Court noted that the policy covered the breaking of any part on the RoGator “arising from faults attributable to manufacturing defects in workmanship or materials,” and held that the phrase was broad enough to include breakdown resulting from a design or engineering defect.  Furthermore, the court noted that the policy contained specific exclusions to coverage, but breakdown from design or engineering defect was not specifically excluded.

In finding coverage, the Appellate Court noted that under Georgia law, “where a contract requires a conduct ‘arise out of’ an act, ‘it does not mean proximate cause in the strict legal sense but instead encompasses almost any causal connection or relationship.’”  According to the opinion, “‘nothing more than a slight causal connection is required . . . ’ [Cits.]”  Consequently, the Court held that “the phrase ‘arising from fault attributable to manufacturing defects and workmanship or materials’ is broad enough to include a breakdown or failure related to a manufacturing defect, even where there was a design or engineering defect.”

Georgia Court Upholds Unlisted Household Resident Exclusion

The Georgia Court of Appeals recently upheld the validity of an unlisted household resident exclusion in an auto policy and reiterated its prior position that public policy considerations will render otherwise valid exclusions invalid only in limited situations.  In Kovacs v. Cornerstone Nat’l Ins. Co., the insured’s son, driving a vehicle covered under the policy, was involved in an accident with a pedestrian.  The policy application required that the mother list all household residents 15 years of age or older. Id. at *1.  Despite the fact that the son was a resident of the mother’s household over the age of 15, she did not list him on the application. Id.

The policy contained an exclusion for claims arising from a loss involving a vehicle being operated by a “household resident who, at the time of the application, was not listed on the application but who operated a vehicle listed on the application.” Id. at *4.  The Georgia Court of Appeals reiterated its previous holdings that exclusions in auto policies are valid if supported by consideration and  held that the “clear and unambiguous exclusion barred coverage for [the] accident.” Id.

The court rejected the plaintiff’s argument that coverage should be afforded because the plaintiff had no medical insurance to cover bills incurred as a result of the accident. Id. at *5.  The court concluded that because the plaintiff was struck by a driver “whose use of the insured vehicle was…uncovered under the unlisted driver’s exclusion,” public policy did not warrant enlarging coverage. Id.

Court Holds Grocery Store’s CGL Policy Provides Coverage for Employee Who Was Shot in the Store

In a recent decision, Pennsylvania National Mutual Casualty Insurance Company v. Doscher’s Super Markets, issued on May 7, 2012, the Charleston Division of the South Carolina District Court held that Doscher’s CGL policy provided coverage for injuries related to the shooting of Doscher’s employee, Burton Thorne, Jr., who was shot by another Doscher’s employee in the break room.

In the underlying complaint, Thorne asserts a cause of action for negligence based on negligent hiring, training, retention, management, and supervision and alleges that Doscher’s failed to make the workplace safe.  Although Penn National initially argued that the shooting was not an occurrence and that the shooting was an intentional act (and thus not covered by the policy), Penn National eventually conceded these arguments and they were not discussed in the opinion.

The Court held that the Employer’s Liability Exclusion in the policy does not apply given the facts.  The Employer’s Liability Exclusion excludes coverage for bodily injury to an “employee of the insured arising out of and in the course of . . . employment by the insured.”  All parties agreed that Thorne alleges bodily injury, that he was an employee at the time of his injuries, and that the shooting occurred in the course of employment.  The only question was whether Thorne’s injuries arose out of his employment.  Noting that it is well settled in South Carolina that the term “arising out of” when used in an insurance policy exclusion should be construed to mean “caused by,” the Court held that Penn National did not show that Thorne’s injuries were caused by his employment.

Finally, the Court held that the Worker’s Compensation Exclusion does not apply, because Doscher’s “currently has no obligation under a worker’s compensation law.”  Although Thorne initially filed a worker’s compensation claim, he voluntarily dismissed it.  In addition, the state court in the underlying action denied Doscher’s summary judgment motion in which Doscher’s argued that Thorne’s claims were barred by the workers’ compensation exclusivity doctrine.

Therefore, the Court found there was coverage under the Penn America policy for Thorne’s injuries relating to the shooting that occurred in Doscher’s.

Legal Fees and Costs Not Covered for Investigation Conducted by SEC

Handwritten Insurance Claim Form with pen and calculatorIn a recently unpublished opinion from the Eleventh Circuit Court of Appeals, costs incurred in voluntarily assisting with a regulatory investigation by the Securities and Exchange Commission (SEC) are not costs “arising from” a securities claim.  Office Depot sought reimbursement from its insurers of approximately $20 million in legal fees incurred during a time it was voluntarily cooperating with the SEC’s investigation.  The insurers denied coverage for the fees and Office Depot instituted a declaratory judgment action against the insurers, seeking a determination that the fees were covered under the policies.  Office Depot, Inc. v. National Union Fire Ins. Co. of Pittsburg, PA, et al., 2011 WL 4840951 (11th Cir. 2011).