Lend Lease (US) Constr. LMB Inc. v. Zurich Am. Ins. Co., No. 11, 2017 N.Y. LEXIS 112 (N.Y. Feb. 14, 2017)

Early, in its opinion, the New York Court of Appeals noted that “[o]ne of the most dramatic images of [Superstorm Sandy] depicts the damage caused to [a] crane [being used on the construction of a 74-story skyscraper] when the boom of the crane collapsed in high winds and teetered precariously from a height equal to the top of the building.” At the time of the incident, Extell, the owner of the project, was the named insured on a $700 million builder’s risk insurance program comprised of five separate insurance policies.  Lend Lease, the contractor, was an additional insured on the policies.

Following the incident, Extell and Lend Lease submitted a claim to the insurers seeking to recover the damages incurred by Extell and Lend Lease resulting from weather-related harm to the crane. The insurers denied the claim and disclaimed that there was coverage under the policies.  This action ensued.  Both parties filed motions seeking summary judgment on the coverage issue.  The trial court denied the motions, ruling that there was an issue of fact regarding the applicability of certain exclusions in the policies.  On appeal, the Appellate Division granted the insurers’ motion for summary judgment, finding that there was no coverage because the crane did not fall within the policies’ definition of “temporary works.”  This appeal followed.

Resolving the appeal required the Court of Appeals to answer two questions. First, was the damage to the crane covered under the policies in the first instance.  Second, if there was coverage, was it defeated by the policies’ contractor’s tools exclusion.  As explained below, the court concluded that although there may have been coverage in the first instance, the coverage was defeated by the exclusion.

To answer these questions, the court first looked to the language of the policies, as it must in resolving disputes over insurance coverage. Initially, the court noted that the policies’ insuring agreements defined “covered property” to include “temporary works,” which in turn included “scaffolding . . ., formwork, falsework, shoring, fences and temporary buildings or structures . . . all incidental to the project, the value of which has been included in the estimated TOTAL PROJECT VALUE of the INSURED PROJECT declared by the named insured.” (emphasis added).  The court concluded that the crane was a “temporary structure” within the meaning of the policies.  Further, the court summarily rejected the insurers argument that the crane was “integral” and not “incidental” to the project, an argument premised on the fact that certain reinforcing elements of the crane were to remain part of the building upon its completion.  Finally, the court noted that there was a triable issue of fact as to whether the insureds disclosed the value of the crane in the “total project value,” but stated that if the crane’s value was disclosed, there would be initial coverage under the policies.

However, the court held that even if there was initial coverage, that coverage was defeated by the policies’ contractor’s tools exclusion. The exclusion provides that the “Policy does not insure against loss or damage to . . . Contractor’s tools, machinery, plant and equipment, including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROECT.”  The court concluded that the crane fell squarely within the definition of the term “machinery” and that the “principal parts of the crane were ‘not destined to become a part of the [building]’ upon completion of construction.’”  Therefore, the court found the damage to the crane was excluded from coverage under the policies.

Finally, the court rejected the claimants’ argument that the court should refuse to apply the contractor’s tools exclusion because it is so broad that it renders illusory any coverage afforded under the policies. The court noted that the exclusion did not defeat all coverage, and stated that “an insurance policy is not illusory if it provides coverage for some acts subject to a potentially wide exclusion.”

To view the full text of the court’s decision, courtesy of Lexis®, click here.