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“Property Damage” Must Be Actual Not Potential
Post 4771
Breach of Construction Contract Not an Insured Peril
After the plaintiff’s motion for summary judgment was rejected and the defendant insurer’s motion for summary judgment was granted the plaintiff appealed. In Westchester Modular Homes Of Fairfield County, Inc. v. Arbella Protection Insurance Company, No. AC 45433, Court of Appeals of Connecticut (April 2, 2024) and the Court of Appeals resolved the dispute.
FACTS
On or about April 27, 2016, the plaintiff entered into a contract with Diana Lada L’Henaff and Jean Jacques L’Henaff for the construction of a new modular home on property located in New Canaan (property). During construction, disputes arose between the L’Henaffs and the plaintiff. Ultimately, the L’Henaffs terminated their contract with the plaintiff on December 14, 2016. The plaintiff filed a mechanic’s lien on the property on or about February 3, 2017, and commenced an action to foreclose on the lien on or about April 7, 2017 (underlying litigation).
The L’Henaffs filed a counterclaim that alleged that they “desired to build a modern home and had very carefully and specifically specified the type of insulation, materials, and finishes that they required the builder that won the job to satisfy.” The L’Henaffs alleged that work on the project progressed slowly and with constant problems. The L’Henaffs alleged that the plaintiff had breached the construction contract.
The plaintiff, as a named insured under a commercial general liability policy issued by the defendant (policy), filed a claim for coverage with the defendant which was refused. The defendant disclaimed coverage on the basis that the first revised counterclaim filed in the underlying litigation did not allege “property damage” caused by an “occurrence” and, therefore, it did not trigger coverage under the policy.
The trial court determined that the pleadings in the underlying litigation did not allege property damage. As to the extrinsic documents submitted to the defendant by the plaintiff, the court determined that such evidence established only the existence of possible defective work that could lead to future property damage if not remedied but that it did not demonstrate the existence of current property damage.
DISCUSSION
Because there are no factual issues in dispute in the present case, the court was only faced with the legal question whether the defendant had a duty to defend the plaintiff. Specifically, the defendant contended that the extrinsic documents suggested, “at most, that the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed.” (Emphasis in original)
The Plaintiffs alleged construction defects and did not allege damage that the defects caused to other, nondefective property. Since the plaintiffs expert testified that he had identified defective work that, if not remedied, could lead to property damage in the future but identified no damage, Plaintiffs failed to allege facts bringing the underlying litigation seeking property damage that would have required a defense.
The Court of Appeals made clear that repairs to structural deficiencies, made for the purpose of preventing physical injury to tangible property before the alleged deficiency has caused property damage are not within the insuring agreement’s definition of property damage.
Because there was no indication of water damage at all. At most, the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed. Damage to nondefective property in the form of rot or mold caused by water intrusion would be property damage within the terms of the policy language. However, the plaintiff did not present any evidence of actual damage or case law holding that the presence of water, in the absence of actual damage, amounts to covered physical damage.
The Court of Appeals concluded that the notification of the mere presence of water, without some corresponding physical damage, did not provide the defendant with actual knowledge of facts establishing a reasonable possibility of coverage because the presence of water does not constitute property damage within the terms of the policy.
Accordingly, the defendant did not have a duty to defend the plaintiff in the underlying litigation, and the court properly rendered summary judgment in favor of the defendant.
ZALMA OPINION
When an insured breaches the terms of a construction contract it will invariably be sued by the other party to the contract for damages resulting from the breach. Westchester Modular Homes breached its contract by creating a defective modular home that would, in the future, if defects were not cured, suffer physical damage. Since there was no physical damage to the structure – just the potential of damage – coverage did not apply and Westchester was obligated to defend and indemnify itself to the allegations of the underlying litigation.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
