April 3, 2022
Attorneys Spiro Bantis and Jan Duffalo of London Fischer LLP recently obtained a decision from the New York Supreme Court, New York County holding that London Fischer’s client, U.S. Specialty Insurance Company (“USSIC”), does not have a duty to defend the insured in underlying litigation involving alleged property damage resulting from excavation. The Court found that USSIC’s Exclusion for Continuous or Progressive Injury and Damage precluded coverage as a matter of law.
The coverage action arises out of underlying litigation brought by the owners of a building on Canal Street in Manhattan. The owners allege that improper demolition and construction work in the basement, including inadequate underpinning, shoring and bracing, caused property damage. The alleged property damage consisted of cracking of the walls on the second floor and damage to the foundation, which necessitated the complete demolition and reconstruction of the entire building. USSIC’s insured, a third-party defendant in the underlying litigation, performed demolition work in the basement in November and December 2013. Cracking in the second floor walls was first observed in June 2014.
The insured commenced a declaratory judgment action seeking defense and indemnity for the underlying litigation from USSIC, which issued a CGL policy to the insured for the policy period January 30, 2014 to January 30, 2015, and another insurer which provided CGL coverage for the prior period August 30, 2013 to January 30, 2014. USSIC contended that there was no coverage under its policy based on the exclusions for: (1) property damage that first existed, or which was caused by a condition that first existed, prior to the January 30, 2014 inception date of the policy; and (2) “earth movement,” defined to include any movement of land, soil or earth. Both USSIC and the insured moved for summary judgment.
The Court ruled that the insured’s work was the condition that allegedly caused the property damage, and since the insured’s work was completed before the USSIC policy period, the Exclusion for Continuous or Progressive Injury and Damage applied. Further, while the property damage may have continued into the USSIC policy period, the exclusion was broad enough to encompass such property damage. The Court concluded that USSIC had established that the exclusion applied and therefore has no duty to defend the insured in the underlying litigation.
The Court did not rule on whether USSIC’s Earth Movement Exclusion applied. It was a moot point because the Exclusion for Continuous or Progressive Injury and Damage applied and negated USSIC’s duty to defend. The Court also held that the insurer covering the policy period prior to USSIC has a duty to defend the insured in the underlying litigation.
Continuous and progressive property damage claims potentially trigger coverage under multiple, successive CGL policies. An exclusion for property damage which first existed prior to the policy period may preclude coverage under later policies, but not if the date that property damage commenced is in dispute. If the exclusion, however, extends to conditions that first existed prior to the inception date, it may be feasible to pinpoint when the condition that caused the property damage commenced. The New York Supreme Court’s decision highlights the advantage of excluding conditions first existing prior to the policy policy in addition to property damage first existing prior the policy period.
The decision is Rite-Way Internal Removal, Inc. v. Scottsdale Ins. Co., et al. Index No. 706691/2020 (N.Y. Sup. Ct. Mar. 28, 2022)
View the decision below:
