One of the cranes was installed on a reinforced slab on the 20th floor of the building. Once all other trade work was completed at the project, it was to be dismantled and removed from the site. Several components of the crane, including beams cast into the slab and materials reinforcing the locations at which the crane was “tied” to the building as it arose next to that edifice, were designed to permanently remain part of the building upon the completion of construction.

By October 29, 2012, the crane had risen approximately 750 feet from its base. On that day, Superstorm Sandy made landfall in the New York City area.

The boom of the crane collapsed in high winds and teetered precariously from a height equal to the top of the building.

At the time of that incident, Extell was the named insured on a program of builder's risk insurance containing coverage in the amount of $700 million – that is, the total estimated cost of the project. The program was an amalgamation of five separate insurance contracts, each of which was issued by a different insurer and each of which covered a different percentage of the aggregate risk. Zurich American Insurance Company assumed half of the aggregate risk and furnished the “lead” policy with respect to that exposure.

Extell (the named insured) and Lend Lease (an additional insured) sought coverage for the weather-related harm to the crane.

After the insurers denied the claim, Extell and Lend Lease went to court, seeking, among other things, a declaration that the crane was covered property under the policy and that coverage for the crane was not subject to any policy exclusion.

The trial court entered an order denying competing motions and cross-motions for summary judgment that eventually were filed with respect to that coverage question, ruling that there was an issue of fact whether the contractor's tools exclusion defeated coverage for the loss.

A divided appellate court granted summary judgment in favor of the insurers, declaring that they had “no obligation to provide coverage under the … policy.”

The appellate court held that “the … crane was integral, not 'incidental to the project,'” and, therefore, that it did not fall within the policy's definition of “Temporary Works.” The appellate court added that, even if the crane fell within the definition of “Temporary Works,” the “contractor's tools … exclusion would be applicable and … enforceable.”

The dispute reached the New York Court of Appeals.

The Zurich Policy

The Zurich policy provided that:

Subject to the terms, exclusions, limitations and conditions contained [therein, the policy] insures against all risks of direct physical loss of or damage to Covered Property while at the location of the INSURED PROJECT* 

The policy defined:

covered property 

as:

the insured's interest in

, among other things,

temporary works 

, defined as:

[a]ll scaffolding (including scaffolding erection costs), formwork, falsework, shoring, fences, and temporary buildings or structures, including office and job site trailers, all incidental to the project, the value of which has been included in the estimated TOTAL PROJECT VALUE* of the INSURED PROJECT* declared by the Named Insured. 

The policy defined:

total project value 

as:

The total value of PROPERTY UNDER CONSTRUCTION*, TEMPORARY WORKS*, existing structures (when endorsed to the Policy) and LANDSCAPING MATERIALS*, plus labor costs that will be expended in the INSURED PROJECT*, plus site general conditions, construction management fees, and contractor's profit and overhead, all as stated in the Declarations. 

The policy also provided:

Th[e] Policy does not insure against loss or damage to … Contractor's tools, machinery, plant and equipment including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROJECT*, unless specifically endorsed to the Policy. 

The court affirmed.

In its decision, the court ruled that there was no coverage for the loss because any coverage was “defeated by the contractor's tools exclusion.”

According to the court, the crane fell “squarely” within the definition of “machinery” for purposes of the exclusion.

The court acknowledged that Extell had submitted evidence that “components of [the crane were] to remain permanently part of the building following the completion of construction,” but it reasoned that those “components” consisted primarily of reinforcements and ties, and the “principal parts” of the crane were “not destined to become a part of the [building]” upon the completion of construction. Accordingly, the court decided, the contractor's tools exclusion applied to the crane.

The court also rejected the argument that applying that exclusion rendered coverage afforded under the “temporary works” provision of the policy illusory.

The court found that the contractor's tools exclusion did not defeat all of the coverage afforded under the policy's temporary works provision. It pointed out that the exclusion would not defeat coverage initially granted for such things as the cost of erecting scaffolding, for “temporary buildings,” and for such other things as “formwork, falsework, shoring,[and] fences,” which were not “tools” within the meaning of the exclusion. The enforcement of the exclusion, the court concluded, did not create a result that “would have the exclusion swallow the policy” and did not render the coverage granted under the temporary works provision illusory.

The case is Lend Lease (US) Construction LMB Inc. v. Zurich American Ins. Co. (N.Y. Feb. 14, 2017). Attorneys involved include: Matthew J. Lodge, for appellant Lend Lease (US) Construction. Richard J. Lambert, for appellant Extell West 57th Street LLC. Philip C. Silverberg, for respondents.

Learn more: Divided N.Y. Appeals Court Rules that Tower Crane Damaged by Superstorm Sandy Was “Integral” to Project and Did Not Fall within Definition of Temporary Works