The Nebraska Supreme Court has joined in the continuing judicial struggle over the scope of the business risk exclusions and the phrase "that particular part". This case is Copple Construction v. Columbia National Insurance Company, 776 N.W.2d 503 (2009).
Copple was employed by Tyson to repair two small holes in a polyethylene tarp that acted as a lagoon cover at a wastewater treatment plant owned by Tyson; the lagoons are about the size of a football field. While attempting to repair the hole, Copple used his knife to scrape the tip of a blower and a fire erupted from the blower and destroyed about one-third of the tarp. The replacement cost was $340,147.83.
Copple filed a claim for coverage under its general liability policy with Columbia. The insurer denied coverage and a lawsuit was filed by Copple requesting a declaratory judgment that the loss was covered by the policy. The district court granted summary judgment to the insured and the insurer appealed.
On appeal, Columbia assigns that the district court erred by not finding that coverage under the insurance policy was excluded under the business risk exclusions and the pollution exclusion. The Nebraska Supreme Court concluded that a certain business risk exclusion applied so there was no need to address any other exclusion. The business risk exclusion provided this: this insurance does not apply to property damage to that particular part of real property on which the named insured is performing operations if the property damage arises out of those operations. The court then analyzed the exclusion.
There was no question, said the court, that the insured was performing operations within the meaning of the exclusion.
But, what about the "real property" language? Was the tarp real property? Was the tarp a fixture? The court noted that personal property becomes a fixture when it is physically fastened to or connected with the land or building and the fastening or connection was done to enhance the utility of the land or building. Moreover, the court had previously held that to determine whether an item constitutes a fixture requires a look at three factors: actual annexation to the realty; appropriation to the use or purpose of that part of the realty with which it is connected; and the intention of the party making the annexation to make the article a permanent accession to the realty. The tarp was stretched across a lagoon about the size of a football field and it was placed in an anchored trench with concrete poured over it to hold it in place. Furthermore, Tyson intended that the tarp become a permanent part of the property. The court found that the tarp was a fixture and therefore was real property.
Finally, the court looked at the issue of "that particular part". Columbia argued that the cover is what was destroyed by the fire, and so, the property damage in question was to that particular part, the entire tarp. Copple argued that it was hired to repair a small hole in a much larger tarp, that the workers were directed to an area about 66 feet by 4 feet, and that this smaller area was that particular part at issue. The court took note of decisions from other jurisdictions and concluded that it was not possible to segregate the tarp into smaller sections for the purposes of determining on what part of the tarp Copple was performing operations. The court found that it was the entire tarp that was "that particular part" upon which operations were being conducted within the meaning of the policy exclusion.
The ruling of the district court was reversed and judgment was entered in favor of Columbia.
Note: This case represents another attempt by a court to enlighten insureds and insurers on how exclusion j(5) in the CGL form should be interpreted. Courts around the country have examined that exclusion, especially the "that particular part" language and have arrived at different conclusions. The issue is usually decided on a case by case basis, with the specific facts of each case helping the courts make their rulings.
There is no ironclad, bright line rule on the scope of "that particular part" to preclude differing judicial interpretations. However, one guideline to help is this: if a loss occurs while the insured is working on one section or one part of a single, unified, homogenous piece of property, then "that particular part" is most probably to be seen as that one whole unit of property (as the tarp was in this case).
What constitutes an occurrence?
The defendant (the insured) appealed a court order granting summary disposition to the insurer in a declaratory judgment action to determine coverage under a commercial general liability policy. This case is Amerisure Mutual Insurance Company v. Hall Steel Company, 2009 WL 724303 (Mich.App.). Note that this case is an unpublished opinion at this time.
Hall Steel originally filed a lawsuit to collect monies allegedly owed by Cleveland Die for steel supplied pursuant to a purchase order. Cleveland Dies counter-claimed that the steel supplied by Hall was defective and this led to a recall. It was determined that as a result of Hall Steel's failure to deliver proper steel, Cleveland Die sustained $288,567 in damages. Hall Steel's insurer filed a declaratory judgment action to determine coverage under its policy for Hall Steel. The trial court ruled in favor of the insurer, saying that there was no occurrence as defined in the policy, and that alternatively, exclusions (m) and (n) negated coverage. Hall appealed.
The Michigan Court of Appeals first examined the insured's assertion that the trial court erred in concluding that there was no occurrence. The court quickly noted that an occurrence is defined as an accident in the policy and that Hall Steel's supplying of defective steel fits the definition of an accident, that is, a happening by chance or something not anticipated and not naturally to be expected.
As for exclusion (m), damage to impaired property, the appeals court began its analysis with an examination of the definition of impaired property. The court found that the steel from Hall Steel was incorporated into the final product, but the resulting defective end product could not be restored to use by repair, replacement, adjustment, or removal of the steel. Therefore, the definition of impaired property was not met in this instance and the exclusion was not applicable.
Exclusion (n), the sistership exclusion, was not applicable to the claim because the end product into which the defective steel had been incorporated was not the product, work, or impaired property of the named insured (Hall), and exclusion (n) pertains to these items.
The ruling of the trial court was reversed and remanded.
*Note: This decision is presented mainly to showcase another judicial interpretation of the meaning of "occurrence" that favors the insured's point of view. The general liability policy defines an occurrence as an accident -- and as long as the result of the actions of the insured can be presented as something happening by chance or as something not anticipated by the insured -- attempts by an insurer to claim no occurrence happened are not likely to prevail. Courts will find an occurrence based on the facts of each situation, but emphasis will be placed on how the insured sees an event rather than how an insurer sees it.
Which carrier has responsibility for WC payments?
Mlodozeniec v. Trio Asbestos Removal Corporation, 887 N.Y.S.2d 339 (2009) is a case from New York wherein a court had to decide which insurer was responsible for workers compensation payments to an injured worker. Was the previous carrier responsible since the worker was exposed to asbestos during that carrier's policy period, or was the current insurer responsible since the worker actually became disabled during that carrier's policy period?
The claimant was employed until September 1995 as an asbestos handler performing asbestos removal work for Trio Asbestos Removal Corporation. At that time, the State Insurance Fund (SIF) provided workers compensation coverage to Trio. Trio subsequently replaced the SIF policy with one written by Zurich American Insurance Company. The claimant's health deteriorated and, in 1999 he was diagnosed with an occupational condition. He filed for workers compensation (WC) benefits.
A workers comp law judge found that the claimant's disease was caused by his asbestos related employment and that he was actually disabled as of the time that Zurich was the insurer for workers comp coverage. The workers comp board reversed this decision and decided that because SIF was the insurer when the claimant was last exposed to asbestos, it was liable for the payments. The case was then sent to the New York Supreme Court, Appellate Division, for resolution.
At the outset, the court noted that there is no question that Trio was responsible for the payment of the workers comp benefits. The law in the state provided that an employee may recover benefits from the entity that last employed him in the field that ultimately caused the disabling condition. Furthermore, a review of case law in the state shows that, where a policy is in place on the date of a claimant's disablement, that carrier is responsible for the payment of the workers compensation benefits. The decision of the board was reversed and the holding was that the successor carrier (Zurich American) rather than its predecessor (SIF) was responsible for the workers compensation payments.
*Note: Workers compensation coverage is, of course, subject to individual state law. And so, at least in New York, the law holds that an insurer that provides workers comp coverage at the time of disablement is the one responsible for the WC benefits; last exposure is not the basis for payment.
Insurer and insured spar over meaning of "pollutant"
A Michigan appeals court had to decide what constitutes a pollutant in Hastings Mutual Insurance Company v. Safety King Incorporated, 2009 WL 4114143 (Mich.App.).
Safety King was insured under a commercial general liability policy issued by Hastings when Mastrogiovanni sued Safety King for damages allegedly resulting from Safety King's use of a sanitizing agent during duct cleaning services. Hastings said that there was no coverage because of the pollution exclusion. Hastings claimed that the active ingredient used by Safety King in its operations was triclosan, a pesticide, and this qualified as a pollutant. Safety disagreed and said that even if triclosan was deemed to be a pollutant, it was not used in the manner proscribed by the policy. The trial court agreed with Hastings and granted a motion for summary judgment. This appeal followed.
The appeals court noted that the policy defined a pollutant as any solid, liquid, gaseous, or thermal irritant or contaminant. Hastings held the view that triclosan was a pollutant since it was a pesticide. Safety King said that triclosan is a ubiquitous antimicrobial agent found in a variety of cosmetic and personal hygiene products such as soap, skin cleaning agents, shaving gel, and toothpaste. The trial court did not do any analysis and just quoted the policy definition of pollutant in its holding. The appeals court found that the definition did not actually include pesticides in its wording. Moreover, that court decided that the emphasis in the definition is on the fact that a pollutant is an irritant or contaminant. An irritant is defined in the dictionary as a substance that, because of its nature and under particular circumstances, is generally expected to cause a response; a contaminant is defined as a substance that is not generally supposed to be where it is located and causes undesirable effects. Considered in this context, the appeals court said that an irritant and a contaminant are substances that generally cause injury or harm to people, property, or the environment.
In this case, the appeals court found that Hastings failed to establish that triclosan was an irritant or contaminant. Rather, Safety King showed that triclosan was supposed to be where it was located, that is, in the ductwork, and that it is not generally expected to cause injury or harm to people. And, the court then went on to provide a summary of how various courts see pollutants by listing rulings from around the country. Based on these points, the appeals court reversed the trial court and held that a genuine issue of material fact existed as to whether triclosan is a pollutant under the terms of the policy. Therefore, Hastings, at a minimum, had a duty to defend Safety King against the claims against it.
*Note: The point of this case is that, simply relying on the definition of pollutant as stated in the general liability policy is not going to be a successful strategy for any insurer that decides to use the pollution exclusion to decline coverage. If a substance is a pollutant, the insurer will have to prove this.
Recovery under flood policy and homeowners policy?
The action in this case before the United States District involved a claim against State Farm for additional insurance benefits and statutory damages resulting from alleged underpayment of proceeds to the insured. The case is Lightell v. State Farm Fire and Casualty Company, 2009 WL 4505942 (E.D.La.).
The insured suffered property damage due to the wind and flood caused by Hurricane Katrina. They collected partial payment of their policy limits from both the homeowners and flood insurance policies. Believing that the payments were not indicative of the extent of the actual damage to the home, the insured filed a lawsuit against the insurers. State Farm, the homeowners' insurer, filed a motion for summary judgment.
State Farm asserted that the insured is estopped from recovery related to wind claims because he previously alleged that he was entitled to flood policy limits due to the total destruction of the property. And, the insurer said that the insured has the burden of proving the damage was caused by wind (a covered loss) as opposed to flood (not covered).
The district court held that, although the insured is not entitled to obtain a windfall double recovery by re-characterizing as wind damage those losses for which he has been compensated by attributing them to flood waters, there is no policy or legal principle preventing the insured from recovering for previously uncompensated, covered damage. The combined recovery from a flood policy and a homeowners' policy cannot exceed the value of the property, but there is no restriction on the insured's being able to recover from both policies so as to equal such value. The court dismissed the estoppel claim of State Farm.
As for the burden of proof, the court noted that under Louisiana law, the insured must prove that the claim asserted is covered by the policy and that the burden then shifts to the insurer to demonstrate that the damage is excluded from coverage. It is true, the court noted, that multiple district courts held that the burden shifts back to the insured to segregate the damages between covered and non-covered perils, but the United States Court of Appeals, Fifth Circuit, held that this is not the case. (This decision is Dickerson v. Lexington Insurance Company, 556 F.3d 290 (5th Cir. 2009).) The Circuit Court said that once the insured proved his home was damaged by wind, the burden shifted to the insurer to prove that flooding caused the damage at issue, thereby excluding coverage under the homeowners policy. So, while the insured in this case will have to prove that he is entitled to additional payments for the damage, he does not have the burden of segregating the damages based on covered and non-covered perils.
The motion by State Farm for summary judgment was denied.
*Note: Courts will be answering coverage questions raised by Hurricane Katrina for quite some time. This case is noteworthy for its mention of the ruling in the 5th Circuit pertaining to which party, the insured or the insurer, has the responsibility to show what is excluded from coverage. As is customary, this burden falls on the insurer.
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