Construction Defects, Standing Alone, Do Not Constitute Property Damage
Post 4858
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The Appeals Court of Massachusetts was asked to decide whether the costs of repairing or removing construction defects constitute "damages because of . . . 'property damage'" within the meaning of a commercial general liability policy.
In Lawrence H. Lessard & another v. R.C. Havens & Sons, Inc., & others, No. 23-P-346, Appeals Court of Massachusetts, Essex (August 14, 2024) the Appeals Court was faced with an issue of first impression in Massachusetts: are construction defects "property damage" as defined in a CGL policy?
THE UNDERLYING ACTION
In the underlying action, Lawrence H. Lessard and Jennifer A. Meshna (together, the homeowners) sued their builder for the faulty construction of their home. At trial a jury found numerous construction defects and awarded the homeowners damages. Meanwhile, Main Street America Assurance Company (MSA) -- the insurer that issued to the defendants R.C. Havens with a commercial general liability policy covering the relevant period -- intervened in the action and sought a declaration that it did not have a duty to indemnify R.C. Havens under the policy.
As the project neared completion, the homeowners began to discover substantial issues with the quality of the construction. A number of problems compromised the structural integrity of the home. A portion of a structural post that was supposed to run from the roof to the basement was missing, and partition walls, sill plates, and support beams were installed incorrectly. As a result, some partition walls were improperly weight bearing.
The jury in the underlying action awarded the homeowners $114,159 for the structural defects, $14,207 for the roof deck, $37,000 for the siding, and $52,500 for the metal roof. The jury also awarded the homeowners $925 for problems with the home's insulation, $18,036 for mold damage, $8,430 for loss of use of their home during repair work, and $27,276 for costs of investigating the defects.
A Superior Court judge ruled for MSA on all the issues.
DISCUSSION
As a general principle, the insured (or the individual seeking coverage) bears the initial burden of proving that the claimed loss falls within the coverage of the insurance policy. If the insured meets that burden, the burden then shifts to the insurer to show that a separate exclusion to coverage is applicable.
To resolve the homeowners' appeal, the Appeals Court only needed to address whether the losses constituted property damage within the meaning of the policy.
Policies define "property damage" as physical injury, which suggests the property was not defective at the outset, but rather was initially proper and injured thereafter. Because faulty construction is defective at the outset the cost to repair are not claims for property damage. For example an improperly installed window would not be "property damage," but resulting water damage to the surrounding wall would be.
The Appeals court held that construction defects, without more, do not constitute property damage within the meaning of a commercial general liability policy. The summary judgment record established that the underlying jury verdict awarded damages for the costs of repairing or removing the construction defects themselves.
Since there was no evidence that the construction defects caused injury to other property, MSA had no duty under its commercial general liability policy to indemnify R.C. Havens for the final judgment because construction defects, standing alone, do not constitute property damage within the meaning of a commercial general liability policy and the judgment was affirmed.
ZALMA OPINION
Liability insurance is designed to protect an insured against fortuitous events that cause direct physical damage and damage to the property of persons other than the insured. When there is no direct physical loss there can be no coverage because the only damage was the construction defects that were never undamaged and that did not cause damage to other property. The builder must pay from its own funds the judgment.
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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...
