Opinion
110593/06.
Decided January 25, 2010.
Neil M. Eseman, Esq. of Goetz Fitzpatrick LLP for Plaintiff.
Robert B. Hille, Esq. of Kalison, McBride, Jackson Murphy, P.A. for Defendants.
Plaintiff Savik, Murray Aurora Construction Management Co., LLC (SMA) moves for leave to reargue this Court's decision and judgment dated April 14, 2009 (Decision), and upon reargument, seeks denial of defendants' motion for summary judgment and the granting of its cross-motion for summary judgment seeking a declaration that the defendants were obligated to defend SMA in the underlying arbitration, and setting down an inquest to determine the monies SMA is entitled to receive pursuant to defendants' breach of the duty to defend and indemnify.
Background
This declaratory judgment action arises out of an arbitration wherein non-party Farmingdale Development Corporation (Farmingdale) sought damages from SMA in connection with the construction of a shopping center (the Project) in 2004. SMA was retained as the Project's construction manager pursuant to a construction management agreement (CMA) (Mulhall Aff.). Farmingdale entered into direct contracts with various contractors and made payments.
In the underlying arbitration, Farmingdale alleged that leaks had passed through the roof and walls of the shopping center, causing mold and water damage, as the result of SMA's negligence and, inter alia, false certification that the work covered by the contractors' applications for payment was completed in accordance with contract documents, in breach of the CMA.
According to SMA, it did not undertake construction of the roofs and parapets and had no involvement with the supervision or performance of work inside the interior spaces that suffered damage. Further, SMA contends that the CMA did not require it to certify the prime contractors' work.
SMA was an additional insured under several commercial general liability policies (CGL Policies) with defendant insurers ITT Hartford insurance Group (Hartford), QBE Insurance Corp. (QBE), and Inscorp of New York a/k/a The Insurance Corp. of New York (together, Insurers). According to SMA, none of the property damage at issue in the underlying arbitration constitutes SMA's "work product," which is not covered under the CGL Policies.
The Insurers refused to defend and indemnify SMA, and SMA defended itself in the arbitration. Ultimately, the arbitrators issued an award requiring SMA to pay monies to Farmingdale. SMA commenced this action seeking reimbursement of defense and indemnification costs.
Discussion
In our Decision, this Court determined that the CGL policies did not cover Farmingdale's claims, because SMA was responsible for the entire Project as construction manager, and any damage to the Project was, in effect, damage caused by SMA's work product. Thus, the claims were excluded under the provisions applicable to "property damage," under the so-called "word product exclusion." On this basis, the Court granted the Insurers' motion for summary judgment and denied SMA's cross-motion.
SMA contends that the Court overlooked certain facts and legal arguments in holding that the CGL policies do not cover Farmingdale's breach of contract claims, and mis-applied George A. Fuller Co. v United States Fid. Guar. Co. ( 200 AD2d 255 [1st Dept], lv appeal denied 84 NY2d 806). SMA contends that the Court should have applied the standard set forth in Hotel des Artists, Inc. v General Accident Insurance Company of America ( 9 AD3d 181 [1st Dept], lv dismissed 4 NY3d 739), because the allegations in the underlying arbitration did not relate to SMA's work product, and thus, do not fall under the work product exclusion contained in the CGL Policies.
The Hartford and QBE CGL Policies insure SMA as an additional insured for "property damage" occurring during the policy period. "Occurrence" is defined as:
"An accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The CGL Policies contain a policy exclusion for "property damage" caused by:
"That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operation, if the property damage' arises out of those operations; or that particular part of any property that must be restored, repaired or replaced because your work' was incorrectly performed on it" (emphasis added) (Work Product Exclusion).
It is well-established that an insurer's duty to defend its insured is broader than its duty to indemnify ( Fitzpatrick v American Honda Motor Co., Inc., 78 NY2d 61). An insurer's duty to defend is triggered whenever the allegations in the underlying complaint potentially give rise to a covered claim, or the insurer has actual knowledge of facts establishing a reasonable possibility of coverage ( Frontier Insulation Contractors, Inc. v Merchants Mut. Ins. Co., 91 NY2d 169, 175). However, an insurer may be relieved of its duty to defend on the basis of a policy exclusion if the insurer can demonstrate that the allegations of the complaint cast the pleadings wholly and entirely within that exclusion, and the allegations are subject to no other interpretation ( Allstate Ins. Co. v Mugavero, 79 NY2d 153, 163).
New York courts have consistently held that commercial general liability policies, containing nearly identical work product exclusions to the one contained in the CGL Policies,
"do 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. [Such policies were] never intended to provide contractual indemnification for economic loss to a contracting party because the work product contracted for is defectively produced" ( George A. Fuller Co., 200 AD2d at 259).
Here, the damages sought in the underlying arbitration were costs to correct defective installation of walkway canopies, parapet wall sections and metal cap flashing causing water and mold to infiltrate, and did not arise from an "occurrence" resulting in damage to property distinct from SMA's own work product (Exhibits A-B, annexed to the Eiseman Reply Aff.). The damages were allegedly caused by, inter alia, SMA's failure to supervise contractors, their services and the installation of materials in accordance with the project plans and specifications ( Id.). Thus, the costs that Farmingdale sought were the costs allegedly incurred to remediate SMA's own work product.
Under the CMA, SMA was responsible for, among other duties, to "Arrange to, either by itself or through the employment of trade contractors and vendors, provide for Owner all labor, materials and services for the construction of the Project," and arrange for necessary equipment (CMA, § 2.02). In addition, SMA was responsible for establishing "effective coordination and construction procedures," and "assist the Owner in dealings with trade contractors and suppliers to enforce warranties and guarantees and to supervise, as Construction Manager, any work performed in connection therewith" (CMA, § 2.06 [g], [x]).
SMA's work product, as defined in the CGL Policies, encompasses "any goods or products . . . sold, handled, distributed or disposed of you," and includes "warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of your product," and the "providing of or failure to provide warnings and instructions."
Where, as here, the policies contain work product exclusions that exclude coverage for the defect in the insured's own work product that does not cause injury to, or loss of use of, other tangible property, New York courts decline to find a duty to defend ( see e.g. George A. Fuller Co., 200 AD2d at 259; Baker Residential Ltd. Partnership v Travelers Ins. Co. , 10 AD3d 586 , 586-87 [1st Dept 2004]).
The Court rejects SMA's contention that Hotel des Artists, Inc. ( 9 AD3d at 188) mandates the opposite result. There, the costs sought in the underlying action were for damage caused by the insured's (a hotel) failure to promptly restore the leased premises following a fire, in breach of the lease, and thus, was the result of property damage caused by an "occurrence" ( Id.). Moreover, the commercial general liability policy at issue did not contain a work product exclusion.
Here, in contrast, the CGL Policies contain work product exclusions, and the costs sought in the underlying arbitration were for the costs of correcting work that SMA was contractually obligated to supervise, and thus, involved SMA's work product. Therefore, Hotel des Artists, Inc. ( 9 AD3d at 188), is distinguishable.
For these reasons, SMA fail to demonstrate that the Court determination was not warranted.
The motion to reargue is granted to the extent of substituting this decision in the place and stead of this Court's prior determination on the record, and is otherwise denied.
Accordingly, this opinion shall constitute the opinion and order of this Court.