The Faulty Work of a Subcontractor is Probably a Covered “Occurrence” in New York

Jul 25, 2018

The Tenth Circuit interprets contractual language in favor of the policy holder.

The U.S. Court of Appeals for the Tenth Circuit recently ruled that the New York Court of Appeals would find that damage to a project caused by a subcontractor’s accidental actions constitutes damage to a third party’s property and is a compensable claim under the terms of the general contractor’s excess general liability policy.

An article by Frederic J. Giordano and Stephanie S. Gomez in KL Construction Law Blog explains, in detail, the federal court’s ruling.

“In Black & Veatch v. Aspen Ins. (UK) Ltd [882 F.3d 952 (10th Cir. 2018)], a 2-1 Tenth Circuit panel agreed with Black & Veatch Corp (“B&V”) that its excess policy—which contained a New York choice-law provision—covered claims for property damage to a third party caused by its subcontractor’s faulty work… . The issue before the Tenth Circuit was whether the New York Court of Appeals would find that the Policy covers a portion of B&V’s payments to [American Electrical Power] to repair and replace the damaged [jet bubbling reactors] caused by its subcontractor”

After a review of the Policy, the Court determined that the subcontractor’s actions were accidental and “harmed a third party’s property” and therefore constituted an “occurrence” under the terms of the Policy that triggered coverage by the insurer.

The Court found that although “the term ‘accident’ in not defined under the Policy,” the internal logic of the contract makes it clear that, contrary to the arguments of the insurer, the subcontractor’s poor workmanship was an “accident” that damaged a third party’s property.

Mr. Giordano and Ms. Gomez advise that “although New York’s highest court has not addressed whether construction defects caused by a subcontractor’s defective work constitutes a covered ‘occurrence’ under CGL policies, the Tenth Circuit came to a significant conclusion while interpreting New York law. Policy holders should keep an eye on whether New York ‘joins the clear trend’ among other states’ interpretation of CGL coverage.

Source—

THE TENTH CIRCUIT’S PREDICTION: NEW YORK STATE LIKELY TO FOLLOW TREND RECOGNIZING DAMAGES CAUSED BY SUBCONTRACTORS’ FAULTY WORK IS A COVERED “OCCURRENCE,” Frederic J. Giordano and Stephanie S. Gomez, KL Construction Law Blog, May 17, 2018.