New York Appeals Court Rules in Favor of Insurer in Defective Construction Claim

July 3, 2014

A recent decision by a New York appeals court found that an insurer had no duty to defend construction defect claims despite an expanded definition of “occurrence” within an Owner Controlled Insurance Program (OCIP).

National Union Fire Insurance Company insured the construction project through an OCIP which covered the property owner, the general contractor and subcontractors. The package policy contained a commercial general liability insurance policy and an umbrella policy.

The decision came about as a result of a declaratory judgment action filed by National Union Fire Insurance involving insurance coverage issues within an underlying action brought by a building owner against its contractors after a piece of the exterior wall of the 42-story office building under construction fell eight stories.

The owner of the property, GSJC 30 Hudson Urban Renewal, LLC (GSJC), hired Turner Construction as general contractor for the construction project and Turner subcontracted Permasteelisa to design and build a decorative exterior wall, known as the “curtain wall.”

According to a consultant hired by the property owner, more than 20 percent of the pipe rail connections within the curtain wall did not conform to building plans.

The owner of the property filed suit against the general contractor and subcontractor, alleging defective design and workmanship.

National Union provided Turner and Permasteelisa a defense under a reservation of rights and filed a declaratory judgment action based on the premise that the policy did not cover the underlying claims against Turner and Permasteelisa.

The underlying court granted the declaratory judgment.

The Court noted that under both New York and New Jersey law a commercial general liability policy only provides coverage for bodily injury and property damage. .
The appeals court agreed with the underlying court’s decision and reaffirmed the decision.

The case is: National Union Fire Insurance Company of Pittsburgh, PA, Plaintiff-Respondent, v. Turner Construction Company, et al., Defendants-Appellants, GSJC 30 Hudson Urban Renewal, LLC, Defendant.

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