New Jersey Opinion Focuses on the “Nature and Scope” of Damage to Determine Trigger for Coverage

Recently, a New Jersey appeals court ruled that insurance coverage for construction defect liability claims extends until the nature and the scope of the property damage becomes apparent. Thus, a new grey area has been created for insurers to assess time on risk. The result of the opinion leads one to believe that insurer will more likely than not lose on summary judgment as to “trigger” because the court seemingly requires a rigorous and fact-intensive analysis of when the “last pull” of the trigger occurs.

The underlying matter involved a condominium building that was built between November 2005 and April 2008. As early as February 2008, homeowners noticed water damage in their windows, ceilings and other portions of the units. In May 2010 the unit owners hired an expert to perform a moisture survey of the development and he identified 111 spots of moisture damaged areas that need to be removed and replaced. The unit owners alleged the HVAC contractor was to blame for the moisture intrusion at the project.

Selective issued an “occurrence based” general liability policy that covered bodily injury and property damage taking place during the policy period of June 2009 through June 2012 for the HVAC contractor. Selective disclaimed coverage on the grounds the alleged property damage had occurred prior to the inception of its policy because the homeowners were aware of the problems in 2008. The trial court agreed with Selective and found that the continuous trigger applied to the claims against the HVAC contractor, but still held that Selective had no coverage obligations because the damage had in fact manifested before June 2009.

The HVAC contractor appealed and argued, “the end date for the continuous trigger doesn’t occur until an expert report or some other proof definitively establishes that the policyholder’s faulty work caused the alleged damage.” The court disagreed and stated that “an attribution analysis could be highly fact-dependent, and difficult to resolve when an insured makes a request for defense and indemnification after being named in a complaint.” In sum, HVAC contractor argued that the trigger began when the expert analysis was performed in 2010. Conversely, Selective argued that , based on the hearsay statements of the homeowners, the triggering event occurred in 2008. The appellate court found that information about the building defects was or reasonably could have been revealed at any time between the time of the unit owners’ complaints until the start of Selective’ s policy in June 2009 and the case should be reopened to allow for discovery to explore the critical factual issues outlined in the opinion regarding the discovery of the damage.

The ruling muddies the water as to triggering events and the parties have been ordered to complete more discovery to determine when the essential manifestation occurred in this instance. For insurers in this jurisdiction, this means they will need to pursue discovery as to the nature and scope of the damage to attempt demonstrate when the last trigger pull occurred if they are seeking to avoid providing coverage. Conversely, insureds will likely attempt to undercut this evidence as inadmissible or too vague to warrant a “trigger pull.” Those who represent insureds in this jurisdiction may find this case inconsistent with spirit of the New Jersey Supreme Court’s landmark 1994 ruling in Owens-Illinois Inc. v. United Insurance Co., which applied the continuous trigger in a dispute over coverage for asbestos-related bodily injury claims to maximize coverage.

This case is Air Master & Cooling Inc. v. Selective Insurance Co., case number A-5415-15T3, in the Superior Court of the State of New Jersey, Appellate Division. Our office intends to follow this case and will update with a blog post regarding significant decisions.

Supreme Court of New Jersey Holds Policy Sublimit Offers No Additional Coverage to Insured for Superstorm Sandy

In a recent opinion, the Supreme Court of New Jersey reversed a prior opinion by the state’s appellate division and reinstated a partial grant of summary judgment to Travelers Excess and Surplus Lines Company (“Travelers”) over damages to an apartment complex as a result of Hurricane Sandy in October 2012.  The policy in question included a $1,000,000 limit for flood loss, as well as a $500,000 sublimit for debris removal.  The owners of the apartment complex submitted a claim for the full $1,000,000 limit for flood damages, as well as an additional $207,961.28 for debris removal.  Travelers refused to pay more than the $1,000,000 flood limit, asserting that the debris removal costs were the result of flooding and, therefore, the owners’ total recovery was limited to the $1,000,000 flood coverage limit, regardless of the sublimit for debris removal.  The trial court agreed and granted partial summary judgment in favor of Travelers, holding that the debris removal sublimit could not be read to increase the flood coverage limit.  A panel of the state’s appellate division reversed the trial court, holding that the policy provided up to an additional $500,000 in coverage for debris removal.

The New Jersey Supreme Court, in a 5-2 decision, reversed the Appellate Division’s decision.  The court held that “[t]he terms of the Policy unambiguously place a $1,000,000 total on recovery for all flood occurrence losses.”  In reaching its decision, the Supreme Court noted that the flood endorsement included language that “[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood” was the $1,000,000 limit.  According to the court’s majority, this language constituted “a hard cap on the amount recoverable for flood damage” and “categorically denies any flood damage coverage in excess of $1,000,000.”  The court went on to hold that “the Flood Endorsement controls the extent of flood coverage and is not modified by the rest of the Policy’s terms,” and noted that other portions of the policy supported its interpretation.  Therefore, the court found it unambiguous that the debris removal sublimit did not increase coverage under the flood endorsement in the policy.

Parts of South Carolina have recently experienced similar damages from several named storms, including October 2017’s Hurricane Matthew, and we have already seen issues arise regarding the interplay between policy coverages and sublimits as a result of damages sustained from these storms.  It is worth noting that the appellate division’s opinion found that the policy unambiguously included additional coverage for debris removal, while the Supreme Court’s opinion found that the policy unambiguously excluded additional coverage for debris removal.  While the decision of the Supreme Court of New Jersey appears to be in line with a number of opinions in other jurisdictions regarding flood policy sublimits, the differing results reached by New Jersey’s appellate courts regarding this policy language demonstrates not only the importance of well-written policy provisions, but also the importance of properly analyzing and interpreting various interrelated policy provisions when making coverage decisions.

The case is Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Co. (077617), A-85-15 (N.J. 2017), in the Supreme Court of New Jersey.  Please contact us if you would like a copy of the opinion or would like to discuss the case further.

Multiple Claims Versus a Single Occurrence: Iowa Judge Rules in Favor of Pella Windows

A federal judge in Iowa has issued two rulings in the past two weeks interpreting an ongoing coverage dispute regarding underlying construction defect claims against a window manufacturer. The case arises out of a dispute between Pella Corporation and several subsidiaries (“Pella”) and its insurer, Liberty Mutual Insurance Company (“Liberty”).  The dispute arose out of a number of lawsuits against Pella by various plaintiffs for alleged water intrusion damages resulting from defectively designed, manufactured, or installed windows.[1]  Pella sought reimbursement of defense costs and settlements as a result of each of these claims.

On cross-motions for summary judgment, the District Court for the Southern District of Iowa was asked to determine under Iowa law whether to apply a pro rata apportionment of damages for each policy period or a joint and several “all sums” allocation of damages.  The court was also asked to determine whether each of many claims against Pella was a separate “occurrence” under the Liberty policies or whether each of the claims should be categorized as three or four total occurrences, based on the  type of alleged conduct/omissions on the part of Pella.

In its first order, issued March 22, 2017, the court held that Iowa law would apply a pro rata apportionment of damages under the various policies at issue.  In reaching this decision,  the court rejected Pella’s argument that the non-cumulation provisions of the policy required a finding of an “all sums” allocation.  Instead, the court held that the policy language limiting recovery to damages within the policy period unambiguously provided for a pro rata allocation method, and specifically rejected several findings to the contrary by courts in other jurisdictions.

The court issued a second order on March 31, 2017.  In this order, the court determined that each claim constituted a separate “occurrence” under the policies.  In reaching its conclusion, the court noted the majority rule that the determination of the number of occurrences is based on the underlying cause of the alleged property damage.   However, Pella and Liberty disagreed over the level of generality for applying this standard.  Pella argued that each specific claim had distinguishing facts related to the cause of the damages, while Liberty asserted that the underlying cause should be more generally understood to group together claims for defective installation, a fall through a window, and a couple broad categories of manufacturing or design defect claims.

After reviewing the facts of each of the claims and the language in the underlying policies, the court concluded that both parties made reasonable interpretations of the language in the policies in question.  However, because the policies were subject to multiple reasonable interpretations regarding this issue, the court was constrained to find that the policies were ambiguous as to the interpretation of what constituted an “occurrence.”  Therefore, the court found in favor of Pella, pursuant to Iowa law that an ambiguous policy provision must be construed in favor of the insured.

The case is Pella Corporation v. Liberty Mutual Insurance Company, No.  4:11-cv-00273, in the U.S. District Court for the Southern District of Iowa.  Please contact us if you would like a copy of the order or would like to discuss the case further.

[1] This case deals with a number of “sample claims” that were representative of the larger total number of claims.

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.


In Georgia, Coverage for Lead Paint Exposure Excluded as Pollutant Under CGL Policy

This month, the Georgia Supreme Court held that a CGL policy did not provide coverage for brain damage to a child as a result of exposure to lead paint in a rental home.

The suit arose out of a toddler suffering brain damage due to exposure to lead paint in a rental home. The home was insured by a CGL policy issued to the landlord, and the insurer filed a declaratory judgment action arguing that there was no coverage for the claim because bodily injuries due to exposure to pollutants were excluded. Summary judgment was granted to the insurer in the trial court, but the Court of Appeals reversed, holding that the policy did not specifically exclude lead paint as a pollutant. On certiorari, the Georgia Supreme Court reversed the Court of Appeals, agreeing with the trial court that the pollution exclusion barred coverage for the claim.

Specifically, the policy excluded coverage for “(1) ’bodily injury’ or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ (a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.” “Pollutant” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

Ruling for the insurer, the Supreme Court acknowledged that the question of whether lead paint was a pollutant was one of first impression in the State, but it held that prior cases excluding coverage for different pollutants (such as carbon monoxide) under policies with similarly broad language were controlling. In keeping with those cases, the Court held that “lead present in paint unambiguously qualifies as a pollutant” and “the plain language of the policy’s pollution exclusion thus excludes [the claim] from coverage.” Key in this ruling was the Court’s lengthy discussion of the history and purpose of pollution exclusions in CGL policies.

The case discussed herein is Georgia Farm Bureau Mut. Ins. Co. v. Smith, No. S15G1177 (Ga. March 21, 2016). Please contact us if you would like a copy of the case or have any questions.

Party Claims Coverage as Additional insured based on Oral Agreement with Primary Insured … and just may get it!

Will an oral agreement by your insured be enough to create coverage for a third party? The Seventh Circuit Court of Appeals says yes – in the right circumstances.

Vita Food Products, Inc. is claiming status as an “additional insured” under a policy issued by Cincinnati Insurance Company to Painters USA, Inc.

The policy language allowed Painters to add an “additional insured” to the policy by its own agreement (oral or written) so long as that agreement preceded the “occurrence” and that “a certificate of insurance showing that person or organization as an additional insured has been issued.”

Vita hired Painters to provide painting services on its premises; Vita alleges that prior to work commencing, Painters agreed orally to add Vita as an additional insured on the Cincinnati policy. Cincinnati had not yet issued the certificate of insurance naming Vita as an additional insured when one of Painter’s employees was injured in an accident on Vita’s premises. Cincinnati issued the certificate of insurance a day after the accident.

The policy did not require permission from Cincinnati to create the additional insured status, so long as the two insureds had a relationship that makes the addition of a second insured consistent with the nature and aims of the policy, as when the original insured is providing products or services to the additional insured—as was the case here. The policy only required that a certificate ultimately be issued, which it was.

The certificate of insurance states that it is “issued as a matter of information only,” “confers no rights upon the certificate holder” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies.” The Court held that this language indicates that issuance of the certificate could not be a precondition to coverage, because it is just information and does not alter the policy.

The Court indicated that reference in the policy to the certificate of insurance was ambiguous; issuance of the certificate could be regarded as a prerequisite to coverage or it could be intended merely to memorialize the agreement by its insured.
Stating that an oral agreement is a valid contract, the Court held that if Vita can prove that there was an oral agreement with Painters prior to the accident, it is entitled to coverage under the Cincinnati policy.

This case reinforces the rights of additional insureds and reiterates a court’s willingness to interpret insurance contracts against the drafter and in favor of coverage if an ambiguity can be found.

The case is Cincinnati Insurance Co. v. Vita Food Products, Inc., No. 15-1405, United States Court of Appeals, Seventh Circuit. Please contact us if you would like a copy of the case or have any questions.

Hoover: The Georgia Supreme Court Reverses

The Georgia Supreme Court has weighed in and overruled the holding of the Georgia Court of Appeals inHoover v. Maxum Indem. CoThe facts of the case are outlined here in our earlier post of this case.  In short, the question presented to, and ruled on by the Georgia Court of Appeals, was whether the insured’s delay in notifying the insurer about the occurrence was unreasonable as a matter of law. Id.

The Georgia Supreme Court determined in Hoover v. Maxum Indem. Co., —S.E.2d —, 2012 WL 2217040 (2012), however, that the question of whether the notice to the insurer was timely was moot because the insurer waived its right to assert a defense to coverage based on untimely notice.

After being notified of the occurrence, the insurer denied coverage and refused to defend the insured, citing the policy’s Employer’s Liability Exclusion. Id. at * 2.  In the denial letter, the insurer also purported to reserve its right to allege numerous other defenses to coverage, including the notice provisions of the policy. Id.  Thereafter, the insurer filed a declaratory judgment action alleging that it owed no duties to the insured because the Employer’s Liability Exclusion applied, and later filed a motion for summary judgment based solely on the Employer’s Liability Exclusion. Id.

The Georgia Supreme Court determined that the insurer was estopped to deny that coverage applied for failure to comply with the notice provisions because “[a]n insurer cannot both deny a claim outright and attempt to reserve the right to assert a different defense in the future.” Id.  The Court held that “[a] reservation of rights does not exist so that an insurer who has denied coverage may continue to investigate to come up with additional reasons on which the denial could be based if challenged.” Id. at *3.

Essentially, the Court held that a reservation of rights “is only available to an insurer who undertakes a defense while questions remain about the validity of the 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.

Hoover: A Follow-Up to Forshee

In Hoover v. Maxum Indem. Co., 2011 WL 2506455 (2011), the Georgia Court of Appeals held that the insured’s two year delay in notifying its insurer of an accident was unreasonable as a matter of law.  The insured’s independent contractor sustained a catastrophic brain stem injury of which the insured was aware on the date it occurred. Id. at *1.  That same day, the plaintiff’s father requested insurance information from the insured and told the insured that he intended to contact the insurer regarding coverage. Id.  A week later, the father spoke with the insured again regarding the possibility of coverage and stated that he had “put in a call to somebody and was waiting to hear back.” Id.  Nearly two years later, after the plaintiff filed suit, the insured notified its insurer. Id. at *2.

The court held that the delay in notifying the insurer was unjustified, as a matter of law, because “on the date of the occurrence [the insured] was aware of the occurrence and the life-threatening injuries that [the plaintiff] had sustained.  [The insured] also was aware that a claim against [it] was expected to be filed on [the plaintiff’s] behalf.” Id. at *3.  Furthermore, the court rejected the insured’s contention that the insurer had received timely notice from the plaintiff’s father because there was no evidence that the “somebody” with whom the father had allegedly spoken with was an agent of the insurer; further, there was no evidence that the substance of the father’s conversation with that “somebody” provided notice of the occurrence. Id.

Despite the differing outcomes, Hoover is consistent with the court’s holding in Forshee.  In Forshee, the insured was not aware of the severity of the accident at any point until it was served with the complaint and, as such, the question of whether the delay in notifying its insurer was unreasonable was a question of fact.  In Hoover, the insured was well aware of the severity of the injury and knew that the plaintiff likely would make a claim, making the nearly two-year delay in reporting the accident unreasonable as a matter of law.

What Happened at the Crossmann Communities Rehearing?

On May 23, 2011, the South Carolina Supreme Court heard oral arguments in the rehearing of its January 7, 2011 decision, Crossmann Communities.  Including the parties to the case, Harleysville Mutual Insurance Company and Crossmann Communities / Beazer Homes, the court permitted arguments from a number of groups who submitted amicus briefs advocating for the opinion to be reversed or modified.

Before the Supreme Court’s rehearing, the South Carolina legislature passed a bill, signed into law by Governor Nikki Haley on May 17, 2011, which provides a definition of occurrence that is fundamentally different from the definition in the Crossmann Communities decision.  In Crossmann Communities, the court held that water intrusion resulting from faulty workmanship does not qualify as an occurrence and required that an occurrence be fortuitous.  The Legislation  signed into law, on the other hand, provides that “property damage . . . resulting from faulty workmanship, exclusive of the faulty workmanship itself” qualifies as an occurrence.

Everyone was interested to see what impact, if any, the Legislation would have at the rehearing, and they didn’t have to wait long.  Very early in the rehearing, Chief Justice Toal announced that the Court would not permit any arguments based on the Legislation, with the implication being that the Court would not take the Legislation into consideration in reaching a decision.