it is undisputed that the law of New Jersey governs this action, which turns on insurance policy interpretation, and that New Jersey and New York law are consistent as to the issues in dispute here.
The court then held that, under both New York and New Jersey law, faulty workmanship which results in damage to the insured’s work only, regardless of whether any of the faulty work was performed by the insured’s subcontractor, does not constitute an “occurrence.” The court rejected the argument that National Union’s expansion of the definition of “occurrence” beyond an “accident,” to also include an “event or happening,” dictated a different result:
[T]he addition of “happening” or “event” to the definition of “occurrence” does not change the fact that fortuity is still an essential consideration under New Jersey and New York law when determining whether there is coverage under such a policy, and a claim for faulty workmanship simply does not involve fortuity.
To accept J.B.D.’s argument would defeat the distinction between covered and uncovered “property damage” that is well-settled under Florida law. Because the cost to repair defective work, which is expressly not covered, will almost always also mitigate potential damage to other property, which is covered, an uncovered claim for costs to repair defective work would instantly be transformed into a covered claim for “mitigation costs.” Absent some unique circumstances, none of which we can find here, we refuse to adopt this rule.
The Eleventh Circuit remanded the case back to the district court for a determination of J.B.D.’s damages resulting from Mid-Continent’s breach of its duty to defend. The court states that such damages could include “consequential damages” but does not specify what that could include.]]>
The Florida Supreme Court first held that the General Fidelity SIR allowed ICI to satisfy the SIR through indemnification payments received from a third party. While the SIR provision stated that it must be satisfied by the insured, it did not include any language proscribing the source of the funds used by the insured to satisfy the SIR. The court distinguished other decisions where the SIR endorsement expressly stated that payments by others, including other insurers, could not satisfy the SIR. The court also relied on the fact that ICI “hedged its retained risk” by paying for its entitlement to contractual indemnification from its subcontractor years prior to purchasing the General Fidelity policy.
The court next addressed General Fidelity’s argument that, pursuant to the ISO standard “Transfer of Rights of Recovery Against Others To Us” provision, the $1M received from Custom Cutting’s insurer could not be used to satisfy the SIR because ICI’s right to recover that amount from Custom Cutting had been transferred to General Fidelity pursuant to the policy. The court rejected this argument, holding that the common law “made whole” doctrine applied. Under the “made whole” doctrine, when insured and insurer both have rights of recovery against a third party, the insured has priority until it is “made whole.” Here it meant that ICI would be entitled to be made whole before General Fidelity was entitled to any portion of ICI’s recovery from Custom Cutting. While the “made whole” doctrine can be abrogated by contract, the court held that the General Fidelity policy did not do this because the “Transfer of Rights” provision “did not address the priority of reimbursement” or otherwise “provide that it abrogates the ‘made whole doctrine’.”
The court’s opinion illustrates the general rule that there are few if any general rules applicable to SIR provisions; each will generally be strictly construed in favor of the policyholder based on the particular language utilized. The decision is also significant in that it establishes that the standard ISO “Transfer of Rights” provision does not abrogate the Florida common law “made whole” doctrine.]]>
Because the underlying complaints alleged defective products resulting in property loss, to property other than [the insured’s] products, and personal injury, we conclude there was an “occurrence.”
The court distinguished Kvaerner on two grounds. First, the court states that Kvaerner is limited to where the underlying complaint alleges (1) breach of contract and breach of warranty causes of action only, and (2) damage to the insured’s work only. Here, the underlying complaints alleged tort causes of action and damage to property other than the insured’s work. Second, the definition of “occurrence” in the National Union policy included the limitation that the damage be neither “expected nor intended from the standpoint of the insured.” The underlying complaints did not allege that the insured subjectively expected “damages such as the mold related health issues.”
The court also distinguished Millers Capital Ins. Co. v. Gambone Bros. Development Co., Inc., 941 A.2d 706 (Pa. Super. 2007) by suggesting that a bad workmanship claim against a building contractor, as in Gambone, is materially different from a bad product claim against an off-the shelf product manufacturer as in Indalex. Other Pennsylvania decisions suggest the failure of an off-the-shelf product may not be foreseeable, and thus constitute an “occurrence,” whereas the failure of a product to meet contract requirements or specifications is a foreseeable business risk and thus not an “occurrence.”
With respect to the tort causes of action, the court effectively retreated from its application of the “gist of the action” doctrine it had applied in Abbott Furnace in determining that a tort claim was not sufficiently plead and the gist of action was breach of contract such that Kvaerner applied. The court rejected application of the doctrine stating that the legal sufficiency of a tort claim should be determined in the underlying action, not in the separate coverage action.
Indalex is most significant for its express rejection of the “gist of the action” doctrine in insurance coverage actions. Thus, in determining a duty to defend under Pennsylvania law, an insurer will no longer be able to disregard any tort causes of action that are plead with contract based causes of action. While Indalex arguably signals a drawback on the broadening application of Kvaerner, it is limited for two reasons. First, the definition of “occurrence” in Indalex included the “neither expected nor intended from the standpoint of the insured” limitation. As such, insurers can correctly argue that Indalex is limited to policies including that definition of “occurrence.” Second, Indalex is arguably limited to claims against an off-the shelf product manufacturer and thus Kvaerner and Gambone still apply to claims against building contractors. Indalex also casts some doubt on the viability of the federal court decision Specialty Surfaces International, Inc. v. Continental Cas. Co., 609 F.3d 223 (3rd Cir. 2010) which applied Kvaerner even where the damage was not limited to the insured’s work.]]>
On remand, the trial court determined that $257,500.00 of the $650,100.00 judgment against Jones-Williams was for the repair or replacement of defective work, subtracted that amount from the judgment, and entered judgment in the amount of $392,600 for Town & Country. Amerisure appealed that judgment. On June 29, 2012, the Alabama Supreme Court, with its October 21, 2011 decision still not released for publication, reversed. The court determined that, except for non-defective ceiling tiles damaged by moisture penetrating through a defectively constructed roof and other components, all of the other parts of the building which suffered moisture penetration damages were defectively constructed themselves. The court states:
Even if these items suffered further damage as a result of other defective construction, it would be inappropriate to consider that damage covered under the CGL policy if the inherent defects caused by faulty construction already necessitated the repair or replacement of these items.
The court held that only the property damage to the non-defective ceiling tiles constituted “property damage” caused by an “occurrence.” The court reversed and remanded back to the trial court for entry of judgment for Town & Country for $600.00 for the cost to replace the ceiling tiles.]]>
We do not pay for property damage to that specific part of any property that must be restored, repaired, or replaced because of faults in your work.
This exclusion is the functional equivalent of ISO CGL 00 01 exclusion j(6) that applies to property damage to “that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” Dove agreed that the damages for the repair and replacement of the grain elevator fell within the exclusion, but contended that the exclusion did not apply to the damages for the repair and replacement of the other property, the additional grain handling costs, and loss of use. The intermediate appellate court agreed with Dove, holding that, under North Carolina law, the exclusion applied narrowly only to the damages for the repair and replacement of the grain elevator.]]>