Tag Archives: insurance exclusions

CGL POLICIES AND THE IMPORTANCE OF COUCHING THE CLAIM TO THE INSURER

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Contractors and subcontractors that work on construction projects should, and generally do, maintain commercial general liability policies (“CGL Policies”).  Owners absolutely want their contractor and the subcontractors to be sufficiently insured in the event a claim is made either against them or damages or defects occur to their project.  Likewise, the contractor wants its subcontractors to be sufficiently insured for the same reasons.   Contractors and subcontractors, jointly, want CGL Policies so that if a claim is made or they are sued the insurer defends their interests and, hopefully, pays insurance proceeds to resolve the claim.

 

Insurers, however, are not always keen on paying claims and rely on various exclusions in policies that are applicable to the circumstances of the claim.  In other words, if there is no coverage for the claim based on an exclusion, the insurer will appropriately rely on an exclusion in the CGL policy.  As it pertains to CGL Policies, there are two important exclusions insurers rely on when a claim is asserted against a contractor or subcontractor for construction defects.  These exclusions are known as the j(5) and J(6) exclusions and exclude damage to:

 

j(5)   That particular part of real property on which you…are performing operations, if the property damage arises out of those operations; or

 

j(6)   That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.

 

A contractor or subcontractor that reviews their CGL Policies will find the j(5) and j(6) exclusions to be substantially similar to the above.  While contractors typically do not self-perform work, subcontractors typically do  self-perform all or a substantial part of the work.

 

A recent case, Wilshire Insurance Co. v. Birch Crest Apartments, Inc., 2011 WL 3586228 (4th DCA 2011), bolsters insurers’ arguments to exclude coverage under a self-performing subcontractor’s  CGL Policy under the (j)5 and j(6) exclusions.  In this case, a painter performing work on an apartment project spattered paint on glass doors and windows.  The painter tried to remove the paint spatter, and in the process of doing so, damaged the glass doors and windows.  The owner sued the painter and the painter consented to a judgment and assigned its rights under its CGL Policy to the owner. This allowed the owner to sue the insurer directly and assert certain claims against it.

 

The issue in this case was whether the painter’s damage to the glass windows and doors were covered under the policy, or, conversely, whether coverage was excluded pursuant to the j(5) and j(6) exclusions under the policy.  The Fourth District Court of Appeal held that these exclusions barred coverage for all of the owner’s damages:

 

“[T]he record here shows that cleaning paint spatter from windows and doors was within the natural and intended scope of work undertaken by the contractor as part of the painting operations on Birch’s [owner] property if in fact such paint spatter occurred.

***

[T]he scope of the contractor’s operations were intended to include the apartments which were being painted and would, if required, involve cleaning up surfaces which were spattered with paint.  There is no genuine issue of material fact that the property damage in this case was to the apartment upon which H&H [painter] was performing its operations, and that it arose out of the insured’s operations within the meaning of (j)5.  Additionally, there is no genuine issue of material fact that the underlying claim resulted from the insured’s incorrect work on the glass doors and windows of the apartments within the meaning of exclusion j(6).

Wilshire Insurance Company, 2011 WL at *2.

 

In this case, it appears that the owner hired the painter directly and that the painter self-performed the work.  This is noteworthy because had the owner hired the general contractor and the general contractor hired the painter, or had the painter hired sub-subcontractors to perform all of its work, there could have been certain arguments raised to maximize insurance coverage.  These arguments, however, will not be discussed in this specific post.  What is also noteworthy is that the Fourth District focused on what fell within the “natural and intended scope of work” of the self-performing painter.  Since the damage or activity of cleaning up paint on glass fell within the natural and intended scope of the painter’s work, the Fourth District found that the painter essentially damaged  property it was performing work on (the j(5) exclusion)  and, thus, required repairs to the painter’s own work (the j(6) exclusion).

 

It is imperative that when an owner, etc. submits a claim to a contractor or subcontractor’s CGL Policy, the owner consults with a lawyer in furtherance of couching the claim to optimize insurance recovery.  Furthermore, and equally important, when a contractor or subcontractor receives a claim, especially a claim for defects or damage, that they too should consult with a lawyer to best present the claim to optimize the insurer protecting their interests and paying proceeds to resolve the claim.

  

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

UNDERSTANDING INSURANCE COVERAGE – NOT AN EASY FEAT

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Knowing what losses or damages are covered under your insurance policy is extremely important and oftentimes ignored until there is a substantial a loss or damage. But, understanding your insurance coverage is very important so that you know exactly what is covered and what supplemental insurance you may want to procure to protect your interests.

 

Most owners obtain some form of property insurance. Property insurance is designed to cover those direct losses (or “all-risks”) except those losses that are excluded from coverage. This is tricky because you start off with broad coverage that gets dwindled down by various exclusions and policy endorsements that restrict coverage. Understanding these exclusions and endorsements is the key to knowing what is covered and, in many cases, how to present a claim to an insurer. This is not easy because insurance policies are confusing.

 

To explain the confusing language in insurance policies, in Certain Interested Underwriters at Lloyd’s, London Subscribing to Policy Number, MI2226 v. Chabad Lubavitch of Greater Florida, Inc., 36 Fla. L. Weekly D1218a (4th DCA 2011), a building was damaged when a crane landed on it during a tropical storm. The owner had two property insurance policies. It had a policy covering wind damage (“Wind Policy”) and a separate all-risk policy with Lloyd’s of London that excluded windstorm (“Lloyd’s Policy”). The owner’s damages exceeded the limits of its Wind Policy so it smartly submitted a claim under the Lloyd’s Policy for the additional damages arguing that this policy should provide coverage becuase the crane, not the wind, actually caused the damage.

 

The Lloyd’s Policy contained the following exclusion for wind:

 

“We will not pay for loss or damage:

1. Caused directly or indirectly by Windstorm or Hail, regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage…

But if Windstorm or Hail results in a cause of loss other than rain, snow, sand or dust, and that resulting cause of loss is a Covered Cause of Loss, we will pay for the loss or damage caused by such Covered Cause of Loss. For example, if the Windstorm or Hail damages a heating system and fire results, the loss or damage attributable to the fire is covered subject to any other applicable policy provisions.”

 

This bolded language is known as the Ensuing Loss Exception to the windstorm exclusion. Confusing – Oh Yes. What this language really says is that the policy will not cover wind damage, BUT if the wind results in a loss that sets in motion another loss that would be covered under the policy, there is coverage for the other loss. The language in the policy is so confusing that it contains a hypothetical. The hypothetical is really what gives meaning to the application of this Ensuing Loss Exception. The hypothetical illustrates that if a windstorm damages a heating system, the damage to the heating system would not be covered due to the wind exclusion. But, if the damage to the heating system sets in motion an intervening fire that causes damage, this fire damage would be covered. The reason this damage would be covered is because it was not caused by the wind, but rather the ensuing fire (even though the fire was set in motion by damage caused by the wind).

 

In this case, the Fourth District remanded this case to the trial court to determine the actual cause of the crane falling on the building since it was a factual issue in dispute. Under the Court’s line of thinking, if the crane fell on the building because of wind, there would not be coverage under the Lloyd’s Policy due to the wind exclusion. However, if the crane fell on the building due to some other intervening loss set in motion by the wind there should be coverage under this Ensuing Loss Exception. In other words, if the crane fell because some flying object picked up by the wind struck the crane causing the crane to fall on the building, there would arguably be coverage for the loss to the building.

 

This case is an example of the confusing language in policies and having an understanding of the language can enable you to present arguments to maximize insurance coverage.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.