When one hears about suits being filed over the mistaken cutting of trees on the wrong property, the first thing that should come to mind to insurance people, at least, is risk management. The reason is that many, if not most, disputes that arise could probably have been avoided by taking more careful steps (loss prevention) in determining whose property is being affected. The court decisions, in fact, confirm that these disputes over cutting trees could have largely been avoidable through the exercise of care.

This issue of cutting someone else's trees not only affects homeowners, but also businesses, which should know better, particularly those businesses that are in the tree-cutting business. How the litigation that ensues is finally resolved is difficult to predict, because a great deal depends on the facts. It is interesting to note, however, that when the dispute is between the insurer and its named insured who is accused of having caused the property damage, the insurer's task of denying coverage is not an easy one. The reason, in part, is that if the cutting of trees is shown to be an honest accident, the insurer's denial based on the lack of an occurrence will give the insured a significant edge over the whether coverage applies.

One of the commonly-cited cases having to do with the accidental cutting of trees is Pekin Insurance Company v. Miller, 854 N.E.2d 693 (Ill.App.1 Dist. 2006). The tree-cutter's CGL insurer sought a declaration that it had no duty to defend its named insured in an action seeking damage for the named insured's mistake by cutting of trees on the wrong lots. When the trial court ruled that the insurer had a duty to provide defense, the insurer appealed. The appellate court held that: (1) the insured's removal of trees from the wrong lots was an occurrence under the policy, and (2) exclusions for property damage arising from operations and defective work did not apply.

The insurer contended that its CGL policy did not cover the property damage, because the named insured's actions did not constitute an occurrence, as defined in the policy, and property damage must have been caused by an occurrence, i.e., “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”. The insurer also maintained that the named insured's actions were intentional rather than accidental. Its reason was that the courts are said to define an accident as an “unforeseen occurrence, or an undesigned, sudden or unexpected event of an inflictive or unfortunate character”. The insurer maintained that the natural and ordinary consequences of cutting down trees were damaged trees. Although the named insured may not have intended to cut down the wrong trees, the insurer said, the named insured's act of cutting down the trees was intentional. The court, however, held that the focus in determining whether an occurrence is an accident is whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.

The Illinois court, in any event, rejected the insurer's contention that the named insured's removal of trees on the property of others was intentional and, thus, not an occurrence under the CGL policy. It was immaterial, the court said, that the underlying complaint alleged intentional torts. It is the property damage, the court said, that must be neither expected nor intended from the standpoint of the insured. The court therefore found the complaint to constitute an occurrence potentially within the coverage of the policy.

The insurer, however, also raised two exclusions that it maintained precluded coverage. Both of these exclusions, forming a part of exclusion (j), damage to property, were 2(j)5 and 2(j)6. Exclusion 2(j)5 precludes coverage for property 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. Exclusion 2(j)6 excludes coverage for property damage to: that particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.

The court examined the above two exclusionary provisions and concluded that they dealt more with situations where the named insured had a contractual relationship between the named insured and party or parties that have been injured. In other words, the property damaged cannot be said to have been in the care, custody or control of the named insured, since the named insured had no contract with the property owners and the above two exclusionary provisions are an off-shoot of what was known as the “care, custody or control” exclusion.

The named insured, the court said, was on the wrong property when the trees were cut. The property and trees belonged to the property owners who sued the named insured for damaging the trees. There was no contract between the named insured and these property owners. From the court's perspective, the action sounded in tort law and in a violation of a tree-cutting statute.

While there were no Illinois court cases squarely on point, one case, the court said, that was nearly identical in fact and issue, was decided by the Supreme Court of Minnesota in Thommes v. Milwaukee Insurance Company, 641 N.W.2d 877 (2002). A land clearing company (the named insured) entered into a contract to clear and grub land for a commercial development owned by two individuals and entity collectively known as HHA. Adjacent to the HHA property was land owned by someone else, collectively known as the Krajewskis. Complying with the instructions as to the area to be cleared and grubbed, the named insured cleared and grubbed approximately one-half acre of land belonging to the Krajewskis, damaging grass and a number of trees, shrubs and other plants. When suit was brought by the Krajewskis, the named insured turned to its insurer, which declined to defend or indemnify based on the same exclusions that applied in the Pekin Insurance Company case, i.e., exclusions 2(j)5 and 2(j)6.

The Minnesota court in Thommes distinguished between two types of risks undertaken by the insured contractor. There was a “business risk”—the risk that the insured may be liable as a matter of contract law to make good on the products or work which was defective or otherwise unsuitable because it was lacking in some capacity. CGL policies generally do not cover those kinds of risks, the court said. CGL policies, instead, are intended to cover against the second type of risk—the risk that [the contractor's] work or product will cause bodily injury or property to other property, which may give rise to tort liability to third parties.

The Minnesota court in Thommes held that exclusion 2(j)5 was ambiguous, because the policy did not define the phrase “that particular part of real property” or the word “operations”. Nor did the exclusion expressly apply to operations performed on the property of third parties. Given the underlying purpose of CGL insurance, the court explained, and the principle that insurance exclusions are to be construed strictly against the insurer, the court held that exclusion 2(j)5 did not bar coverage for the property damage.

The Minnesota court also held exclusion 2(j)6 to be ambiguous, because it was subject to two reasonable interpretations—either the work was incorrectly performed if performed on the wrong property, or the work was incorrectly performed only if the manner in which the work was performed was faulty or defective. The Minnesota court construed the exclusion narrowly against the insurer, concluding that the exclusion applied only to work performed in a faulty or defective manner and, thus, did not bar coverage.

The dissenting judges in the Minnesota case maintained that the exclusions were clear and unambiguous, with their plain meanings excluding coverage. They also stated that the exclusions were not expressly limited to property performed pursuant to contract. Thommes was said to have been performing operations on the property belonging to the third party, and the damage fell within the reference to property damage in section 2(j)5. Similarly, section 2(j)6, the Minnesota judges said, clearly excluded coverage because “what could be more incorrect than performing the work on the wrong property?” The dissenting judges argued that the majority's result was absurd: “That Thommes should have liability coverage for damages he had inflicted as a trespasser but not have coverage for claims based on work done on the land specified in the clearing contract defies comprehension.”

The court in the Pekin case stated that it sided with the majority in the Minnesota case. In doing so, it held that both exclusions were ambiguous. In exclusion 2(j)5, the Illinois court said that it was not clear what “particular part of real property” the exclusion referred to—the land or the trees. The named insured was performing operations on the trees, the Illinois court said. The court in the Pekin case also held that exclusion 2(j)5 was ambiguous because it was not clear whether the exclusion referred to any property or only to property on which the insured was contractually obligated to perform operations. Given the purpose of the CGL policy, it explained, one could reasonably interpret exclusion 2(j)5 to apply only to property on which the insured was contractually obligated to work. Because there was more than one reasonable interpretation, the court explained, it found the provision ambiguous and construed it against the insurer.

Turning to exclusion 2(j)6, the Illinois court stated that it agreed with the Minnesota court's majority in Thommes that there were two reasonable interpretations of the provision. The phrase “incorrectly performed”, the court said, could have referred to the manner in which the trees were removed. Here, however, there was nothing incorrect about the manner in which the named insured removed the trees. This foregoing phrase also could have referred to the location from which the trees were removed. Thus, it was not clear whether the exclusion applied to the unusual situation because the underlying complaint did not allege that the named insured's tree removal procedures where incorrect, only that the trees were removed from the wrong lots. Nowhere in the exclusion, the court added, did the policy indicate whether the named insured's work was confined to the actual location where he was hired to perform his tree-cutting work.

Likewise, exclusion 2(j)6 did not define the phrase “any property”, the Illinois court said. If it meant the land on which Miller had cut the trees, the court explained, it might have been reasonably argued that the exclusion did not apply because it was not the land that had to be restored, repaired or replaced; it was the trees. If “any property” referred to the trees that were cut, the court said, the exclusion would have made no sense because Miller's (named insured's) work was not incorrectly performed on the trees. The Illinois court, in this case, therefore held the exclusion to be ambiguous and not applicable in this case.

The decisions in the Pekin case and the Thommes case were influential in Beaverdam Contracting, Inc. v. Erie Insurance Company, 2008-OH-4957 (Ohio Ct. App. Dist. 3 2008), where the contractor cleared more land of its trees than it should have.

As part of a nature habitat restoration project, the Village of Cairo, Ohio, gave permission to the local chapter of Pheasants Forever to clear property along an abandoned railroad easement that the village had acquired. Pheasants Forever hired Beaverdam to clear all brush, weeds, scrub trees, etc., from the property so that Pheasants Forever could restore the area and create a wildlife habitat. Beaverdam began to clear the property. Beaverdam did not ascertain where the exact boundaries of the property were located before proceeding and unknowingly cleared land that belonged to a couple (the Fairs) that was adjacent to the village's property. The Fairs' property was allegedly stripped of all trees and vegetation and left barren.

In its lawsuit against Beaverdam and Pheasants Forever, the Fairs alleged that (1) Beaverdam trespassed upon their property without their permission and proceeded to bulldoze and clear the land; (2) Beaverdam negligently bulldozed and cleared their property; (3) Beaverdam recklessly cut down and destroyed vegetation on their property in violation of Revised Code 901.53. As a result of this complaint, Beaverdam (named insured) requested defense and indemnification from Erie Insurance Company (insurer) under its package policy which included a CGL coverage form (CGL policy). The insurer denied coverage.

The insurer argued it has no duty to defend or indemnify because the claims were not within the policy's coverage. Specifically, Erie maintained that the claims were precluded by two policy exclusions, the same two that were considered in the Pekin and Thommes cases. The analysis and issues over these two exclusions need not be repeated here other than the common conclusion of these exclusions, i.e., 2(j)5 and 2(j)6 are meant to apply to damages to the insured's own work, but not for damages to some third party.

In the final analysis, the Ohio court in Beaverdam stated that it was not necessary to determine what was or was not actually covered under the terms of the CGL policy, since the trial court had not yet ruled on the issue of whether the insurer had an obligation to indemnify its named insured, if the Fairs were successful in their lawsuit. The only determination that was necessary here was about the duty to defend. Since, the court stated, that it would appear likely that one or more of the Fairs' claims could potentially fall within the coverage of the CGL policy, Erie had a duty to defend its named insured.

Another case where an insured was held to be covered for its defense and costs for unauthorized tree trimming was Patrick v. Head of the Lakes Cooperative Electric Association, 295 N.W.2d 205 (1980). The insurer refused to defend the insured for damages resulting from the named insured's cutting of an individual owner's trees; some or all of the trees were within an unrecorded easement held by the named insured. The trial court ruled that the insurer had a duty to defend and an appeal followed.

The insurer said it had no duty to defend because the act of cutting trees was intentional, and since the trees were cut on the named insured's easement, the trees were within the physical control of the named insured and were thus excluded from coverage.

The Court of Appeals of Wisconsin decided that any unauthorized cutting was unintended. The facts showed that employees of the named insured intended to trim the trees that were interfering with a transmission line that ran over the individual owner's, but were on an unrecorded easement held by the named insured. The easement authorized the named insured to trim trees that interfered with its lines and the employees did not intend to trim more than what was necessary to reasonably maintain service and did not intend to cut or trim trees outside of the easement.

As for the argument about the trees being under the control of the named insured, the court said that “control” was an ambiguous term and so, must be strictly construed against the insurer. The ambiguity inherent in that term becomes patently apparent when the interests of the parties were considered. The individual who owned the property had a right to cut the trees. The named insured as holder of the easement had no possessory interest in the trees.

The opinion of the trial court was affirmed.