In this unpublished opinion, the Court of Appeals of Michigan discusses the meaning of occurrence in relation to faulty workmanship. This case is Christman Company v. Renaissance Precast Industries, L.L.C., 2011 WL 2462676 (Mich.App.).

Christman entered into a construction contract with Northern Michigan Hospital Emergency and Heart Center to build a parking deck; Christman then subcontracted part of the work to Renaissance Precast Industries; Renaissance was insured by Scottsdale . Renaissance entered into a contract with Sirko Associates to design precast concrete and with Strand Constructors to erect the precast parking lot. Christman was listed as an additional insured on all of the insurance policies of all of the parties involved.

After construction, the hospital notified Christman that there was a concrete failure at the parking structure. Repairs were made and Christman looked to Scottsdale and another insurer for payment. They declined coverage and moved for summary judgment against Christman. The trial court granted summary judgment to the insurers and this appeal followed.

The appeals court noted that the insurance policies applied to injury and damage caused by an occurrence. The policies defined an occurrence as an accident, including continuous or repeated exposure to substantially the same harmful conditions. Neither policy defined “accident” so the court looked to previous Michigan Appeals Court rulings on the subject and found that an accident may be anything that begins to be, that happens, or that is a result that is not anticipated and is unforeseen and unexpected; it is an undersigned contingency, a happening by chance, something fortuitous and not naturally to be expected.

Christman argued that the failure of the portion of the parking structure was an accident because it was unanticipated, unforeseen, and unexpected, and thus the damage was the result of an occurrence. However, reviewing the facts from a different angle, the appeals court decided that Christman did not allege and presented no evidence that there was damage beyond its own work product.

And, since the damage at issue was damage to the components of the parking structure itself, that is, the work of the insured, there can be no occurrence or accident. In other words, faulty workmanship that causes damage confined to the insured's work is not deemed to be an occurrence or an accident.

The judgment of the trial court was affirmed.

Editor's Note: This decision by the Court of Appeals of Michigan reinforces the point that the faulty workmanship of the insured that damages only the insured's work is not considered to be an occurrence. Where the insured's work damages the property of others, that is an occurrence within the meaning of the insurance contract.

Other Insurance Clause

This appeal before the United States Court of Appeals, First Circuit, required the court to determine which of two commercial general liability policies should be considered primary coverage for a claim arising from an accident at a construction site in Portland, Maine .

This case is Wright-Ryan Construction, Inc. v. AIG Insurance Company of Canada, 2011 WL 3128912 (C.A.1).

Wright-Ryan was insured under its own general liability policy issued by Acadia Insurance Company; it was also listed as an additional insured on a subcontractor's general liability policy issued by AIG. Wright-Ryan contracted with the subcontractor (Norgate Metal) for fabrication and erection of structural steel for a project. During the construction, Behrens, an employee of a company hired by Norgate to assist with the erection of the steel, tripped and fell four stories, suffering serious injuries. Behrens sued Wright-Ryan for negligence in connection with the accident. Wright-Ryan tendered the lawsuit to AIG but the insurer did not respond. Wright-Ryan's insurer then assumed responsibility for the defense and settled the claim.

Wright-Ryan and Acadia then filed a complaint for a declaratory judgment against AIG seeking reimbursement for the settlement and attorneys' fees. The district court entered judgment against Wright-Ryan and Acadia and this appeal followed.

The appeals court said that the sole and determinative question is whether the district court correctly held that Wright-Ryan's Acadia policy was primary and the AIG policy was excess. In order to untangle the priority of the policies, the appeals court focused on the other insurance clauses in the policies.

The court said that there were three forms of other insurance provisions: an escape clause that completely denies coverage when other insurance is available; a pro rata clause that operates to share coverage of a loss with other available insurance policies; and an excess clause that extends coverage for a claim only when other insurance available for the claim has been exhausted. The court found that the provisions at issue in this case were of the excess variety.

The other insurance clauses here rendered the policies excess where there exists another insurance policy covering the named insured's work and where there exists another liability policy for the premises or operations that is available to the named insured and on which the named insured has been added as an additional insured. The court determined that the key point was identifying “you”, that is, the named insured.

Wright-Ryan argued that “you” means only the named insured identified in each policy. AIG countered that “you” equates with the named insured as well as any additional insureds added to the policy. The court found that the definition of “you” unambiguously referred to the person or organization listed as the named insured in the policy declarations, and that the term in the AIG policy referred only to Norgate and the term in the Acadia policy only referred to Wright-Ryan. Moreover, a substitution of Wright-Ryan and Norgate for “you” in their respective policies readily established the priority of coverage between the two.

With the substitution, the pertinent section of the Acadia policy reads as follows: this insurance is excess over any other primary insurance available to Wright-Ryan covering liability for damages arising out of the premises or operations for which Wright-Ryan has been added as an additional insured by attachment of an endorsement. The court reasoned thus that Wright-Ryan has primary insurance under the AIG policy for liability arising out of Norgate's work since Wright-Ryan has been added as an additional insured on the AIG policy by means of an endorsement. This makes the Acadia policy excess over the AIG policy.

The judgment of the district court was reversed. The Acadia policy is treated as excess over the AIG policy.

Editor's Note: The other insurance clause in the standard CGL form makes clear that the insurance provided to the named insured by his own policy is excess over any other primary insurance available to the named insured when the named insured has been endorsed as an additional insured on that other primary insurance policy; the U.S. Circuit Court simply applied the plain language of the liability policies in its decision in this case.

And to strengthen the reasoning behind its decision, the court noted that the contract between Wright-Ryan and Norgate required that Norgate name Wright-Ryan as an additional insured on its policy. The only plausible explanation for this requirement would be the desire to shift the risk to Norgate for liability arising out of Norgate's subcontract work for Wright-Ryan, ensuring that claims related to that work were paid out of Norgate's CGL policy before Wright-Ryan's was reached. The court saw this arrangement and the risk-shifting motivation underlying it to be typical of subcontracting relationships in the business world.

Owned Property Exclusion

The insured filed a lawsuit seeking a declaration that the insurer was obligated to defend and indemnify, pursuant to a commercial umbrella liability policy, against underlying claims against the insured arising from the collapse of a retaining wall on the insured's property. This case is Castle Village Owners Corp. v. Greater New York Mutual Insurance Company, 878 N.Y.S.2d 311 (2009).

Castle Village is a cooperative corporation that owns land bounded on three sides by a retaining wall. In 2005, a large section of the wall collapsed, causing a large quantity of debris to fall onto an adjacent sidewalk and roadway. The debris caused damage to passing autos and surrounding property and blocked the sidewalk and a portion of the Henry Hudson Parkway .

After the collapse, the City of New York issued an emergency declaration that required immediate remediation steps, including the removal of debris, stabilization of the wall, protection against rainwater, and the installation of a temporary means of protection for vehicular traffic. The city did the emergency remediation work and then billed Castle Village for reimbursement in the amount of $2,163,067. Castle Village's insurers, Greater New York Mutual Insurance Company (primary insurer) and American International Specialty Lines Insurance Company (umbrella insurer), at this time conducted settlement negotiations with the city, and it was agreed that the primary insurer would pay its remaining policy limits and the umbrella insurer would contribute up to $280,000 in cleanup costs incurred by the city. The umbrella insurer also sent a letter to the insured stating that it was reserving its rights pending an investigation of the loss.

In 2006, the insured advised the umbrella insurer that its primary coverage had been exhausted and demanded coverage for the restoration work to the wall as required by the city. The umbrella insurer denied coverage for the permanent wall restoration work based on the owned property exclusion. Castle Village sued and the trial court ruled in favor of American International. This appeal followed.

On appeal, Castle Village asserted that, as a result of the emergency declaration, it was legally obligated to comply with the city's demand and perform remediation work, which included repair of its own property. It reasoned that since the policy affords coverage for sums that the insured is obligated to pay as a result of liability imposed by law, the effect of the emergency declaration was to render inapplicable the owned property exclusion that was pushed by the insurer.

The appeals court noted that there were circumstances where the owned property exclusion may not be enforceable because of a legal obligation to prevent damage to another's property; however, this was usually the case where the conditions were ongoing and the damage was continuing. In this instance, the emergency work had already been completed and the directive to perform more repair work was necessary to safeguard against future incidents and not immediate, recurring harm. The insured had an obligation to repair the wall, but it was not an obligation that the umbrella insurer was required to indemnify. Even if there had never been a collapse, the city could have directed repair of the wall and the owned property exclusion would have absolved the insurer of the obligation to reimburse Castle Village .

The court summarized its opinion by stating that the test for determining whether the exclusion applies must focus on the nexus between the condition of the insured's property and the existence of ongoing and immediate harm to the property of others. Where the harm cannot be cured without performing work on the insured's property, the exclusion is not applicable. On the other hand, in cases like this, the court decided that where the immediate danger has been corrected, the restorative work to the insured's property will not be covered. The opinion of the lower court was affirmed.

Editor's Note: Exclusion j(1) on the standard CGL form applies to property damage to property that the named insured owns and this includes costs or expenses to repair or restore such property for any reason, including prevention of injury to a person or damage to another's property. This is the same exclusion that the insurer in this case used to deny coverage for the cost of the remediation work on the insured's property. The reasoning behind this exclusion is that the general liability form is not intended to pay for repairs on the insured's own property since such coverage is better suited for a property coverage form.

However, the court noted that this exclusion can be overcome in order to stop ongoing and imminent danger to property belonging to another. In this case, there was no such ongoing and imminent danger, so the exclusion was applicable.

Notes from the States

California has passed a law that provides for the installation and use of electric vehicle charging stations in common interest developments. A homeowner who obtains approval for such an installation shall maintain an umbrella liability coverage policy in the amount of $1 million with the common interest development named as an additional insured.

Connecticut amended the standard fire policy of the state to provide that the ACV of a building that suffered a direct loss caused only by fire or lightning is determined by the amount that it would cost to repair or replace such building with material of like kind, minus reasonable depreciation. Depreciation is defined as a decrease in value of real property over a period of time due to wear and tear. This law takes effect on January 1, 2012.

Maryland law provides a definition of “crime of violence” and also provides that if a policy of homeowner's insurance excludes property coverage for intentional acts, the insurer may not deny a payment for a loss to a victim who is an innocent coinsured.

Missouri law now provides that standard certificate of insurance forms promulgated by ISO are deemed in compliance when filed with the director and may be adopted and used by any of the respective members.

New Hampshire law requires that each certificate of insurance shall state the following: this certificate of insurance is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend, or alter coverage, terms, exclusions, and conditions afforded by the policy or policies referenced herein.