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Court Decides Premises Liability Case

An insurance litigation, class actions, arose which revolved around the issue on the coverage of insurance for the contractors and sub-contractors of a complex where damages resulted.

It was alleged – that, on, about and between February 10, 2003 and continuing to and through November 2007, certain Plaintiffs and all members of the Personal Injury Subclass sustained serious and permanent injuries as a result of breathing, inhaling, being subjected to, and living in an environment infested with mildew, mold, bacteria and other contaminants; that, at all relevant times, the defendant, its agents, servants, representatives and/or employees, constructed and built the Complex; that, at all relevant times, plaintiffswere tenants of the defendant; that, at all relevant times, the Complex had significant water intrusion, water damage and extensive mold infestation.

A New York Injury Lawyer said that individual and class actions were filed by tenants of the complex, alleging personal injury and property damage related to pervasive water leaks and exposure to mold and other bacteria present throughout the complex. Because of this, other actions arose seeking, among other things, damages, indemnification for any monies that will be paid or has been paid to tenants, because of the ubiquitous water intrusion issues and pervasion of mold growth; thereafter, an action for insurance coverage.

Various insurance policies contain an exclusion for damages as to which the insured has liability only because of an indemnification agreement or similar assumption of premises liability. This insurance does not apply to bodily injury or property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. However, this exclusion does not apply if there is another independent source of liability for such damages. These policies thus contain additional language indicating that this exclusion does not apply to liability “that the insured would have in the absence of the contract agreement.” The present action involves claims for both, contractual and common law indemnification in connection with the Tenant Actions. Because common law indemnification is liability that the general contractor “would have in the absence of the contract agreement” for contractual indemnity, there is a reasonable possibility of coverage for those indemnification claims.

One of the contentions was that the policies expressly and unambiguously exclude purely contractual damages. The Court reasoned rejected such claim. Nothing in the coverage terms of the policy even implies a distinction between liability acquired by contract or in tort.” Indeed, the plain meaning of the provision is to exclude from coverage the insured’s voluntary assumption of another’s liability, such as by an indemnification agreement. It is axiomatic that contractual damages occur only upon breach of contract, and therefore there is no liability for such damages upon the signing of a contract, before they occur.

Various insurers argue that their policies exclude purely contractual damages from coverage, because the requirement of an “occurrence” is not satisfied. This argument is essentially an alternative manifestation of the work/product exclusion in many general commercial liability insurance policies, and the language should not be read to broaden that exclusion beyond its plain meaning.

Insurers point to language in their policies that indicates that a covered “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Here, the [underlying] complaint does not allege an “occurrence” resulting in “property damage” as contemplated by the comprehensive general liability policy… The asserted claims arise out of a contract dispute between the insured, a general contractor, and the property owner. [The contractor’s] policy, however, does not insure against faulty workmanship in the work product itself but rather faulty workmanship in the work product which creates a legal liability by causing bodily injury or property damage to something other than the work product. The Court then reasoned that the claimant had only alleged economic damages, such as repair and reconstruction costs and diminution in property value, and that such allegations do not involve an accident or continuous exposure to a harmful condition, such as would represent an “occurrence.” A Nassau County Personal Injury Lawyer said because damage only to the work or product itself was alleged, stand-alone allegations of negligent installation or supervision (which, it is worth noting, would collapse into contractual or warranty causes of action under the economic loss doctrine), did not transform the nature of the exclusively contractual or warranty claims.

Subsequent decisions have adopted this holding and have more broadly concluded in dicta that general commercial liability policies, as a rule, provide coverage only for damages arising in tort and exclude purely contractual or warranty damages. However, because each insurance policy is an agreement between the parties, it must be interpreted in accordance with the language of that policy.

To the court’s knowledge, there are no contentions for the tort injury limitation imposed on “occurrence,” and who do not also have a work/product (or “your work” or “damage to property” – defective product) exclusion. Turning to the work/product (“your work” or “damage to property”) and premises hazard (“damage to property”) exclusions, several of the insurers contend that language in these exclusions relieves them of any duty to defend the contractors and sub-contractors, because all allegations in the Tenant Actions relate to defects in their named insured’s work. The work/product exclusion removes from coverage damage to “that particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it,” “property damage to your product’ arising out of it or any part of it,” and “property damage to your work’ arising out of it or any part of it.” The premises hazard exclusion removes from coverage damage to “property you own, rent, or occupy…,” and damage to “that 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 premises hazard exclusion, as it might apply to any allegations in the Actions is co-extensive with work/product exclusion in this case, since the products and work applied in the complex involved real property. A Queens Personal Injury Lawyer said the legal understanding and interpretation of a work/product exclusion has been explained numerous times in a variety of cases. The fact that defective work is alleged, does not mean that the work/product exclusion applies. The exclusion applies only if the claimed damages relate only to the work or product itself, such that they make out only contractual or warranty type claims; if some defective work or product causes damage to persons or to property other than to any installed product or work performed, the exclusion does not apply. In a landmark case it was held that the consequence of not performing well is part of every business venture; the replacement or repair of faulty goods and works is a business expense, to be borne by the insured-contractor in order to satisfy customers.

There exists another form of risk in the insured-contractor’s line of work, that is, injury to people and damage to property caused by faulty workmanship… While it may be true that the same neglectful craftsmanship can be the cause of both a business expense of repair and a loss represented by damage to persons and property, the two consequences are vastly different in relation to sharing the cost of such risks as a matter of insurance underwriting.

An illustration of this fundamental point may serve to mark the boundaries between business risks’ and occurrence giving rise to insurable liability. When a craftsman applies stucco to an exterior wall of a home in a faulty manner and discoloration, peeling and chipping result, the poorly-performed work will inevitably have to be replaced or repaired by the tradesman or by a surety. On the other hand, should the stucco peel and fall from the wall, and thereby cause injury to the homeowner or his neighbor standing below or to a passing automobile, an occurrence of harm arises which is the proper subject of risk-sharing (as provided by the type of policy in the present case) The injury to persons and damage to other property constitute the risks intended to be covered.

In support of the allegation of the insurers, they cited a case which held that water damage to a building involved only repair costs to the owner. Critically, the underlying complaints which those cases analyzed did not allege any other damages to persons or property, other than to the work or product itself. In contrast, the actions allege consequential damages to the tenants’ personal property and health. Damage to the tenants’ personal property is not damage only to the work or product itself.

It was also alleged that mold exclusion removes from coverage all allegations in the underlying actions. In fact, some insurance policies do not exclude damages from mold, while others expressly provide coverage for damages arising from mold. As to those carriers, therefore, there is a reasonable possibility of coverage as to the tenants’ alleged bodily injury related to mold exposure.

In relevant part, the insurers’ mold exclusions bar coverage for ” bodily injury’ [or] property’ … which would not have occurred or taken place, in whole or in part, but for the… inhalation of, ingestion of, contact with, exposure to, existence of, or presence of any fungi’ or bacteria’… regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.” These insurers contend that all property damage and personal injury was related to mold, or concurrently to mold and water and that the Tenant Actions allege damage to personal property that was not concurrently damaged by mold. Alternatively, there is a doubt as to whether tenants suffered some damage to personal property that was related only to water intrusion, and this doubt supports a reasonable possibility of coverage.

The mold exclusions did not apply to bar coverage, because, the Tenant Actions alleged damages from water and/or mold. The tenants have sustained “significant property damage and other economic damages as a result of the water damage and mold infestation present in their apartments. Such losses may include but are not limited to the costs of replacing or restoring property damaged by water and/or exposed to toxic mold.”

Wherefore, insurance coverage has been sufficiently established in the consolidated actions for a duty to defend the contractors and sub-contractors.

Are you a victim of a faulty product or a poorly constructed house? Have you suffered damages by reason of the negligence or lack of care of another? Are you in pain because of an inefficient worker you’ve hired? Do you want to do something about it but you don’t know how? Let us help you. Know your rights and protect yourself from past, present and future harm. Be wary of your surroundings and defend yourself from these careless individuals who have no regard of other people’s safety but themselves. Contact Stephen Bilkis & Associates.

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