Carbon Monoxide Leak not Considered an Occurrence in New Hampshire
In this declaratory judgment action, the insured appealed an order by the trial court denying its cross-motions for summary judgment and granting summary judgment in favor of the insurer. The case is Concord General Mutual Insurance Company v. Green & Company Building and Development Corporation, 2010 WL 3618713 (N.H.).
Green began a project involving the construction of thirty-four homes. Green contracted with Birch Masonry to build the chimneys in all of the homes. Birch had Green added to its general liability policy as an additional insured. Green had its own commercial general liability policy with Concord General.
After the homes were completed, Green began receiving complaints about the chimneys and several lawsuits were filed against Green and Green requested coverage from Concord . The insurer agreed to provide Green with a defense pursuant to a reservation of rights. While the lawsuits were pending, Green placed carbon monoxide detectors in each of the homes and discovered unacceptable levels of carbon monoxide in several of them. Green hired an independent company to conduct tests on all of the chimneys and in every case, it was discovered that the defective chimneys led to the escape of the carbon monoxide. Subsequently Green either paid to have the defective chimneys repaired or reimbursed those homeowners who had already made repairs. After the repairs were made, the lawsuits against Green were either settled or withdrawn.
In the meantime, Concord General initiated a declaratory judgment action against Green to resolve the issue of coverage. Green argued that the leaking carbon monoxide constituted property damage and is an occurrence. The insurer and the trial court disagreed. This appeal followed.
Green told the court that the carbon monoxide that seeped into the homes as a result of the faulty chimneys resulted in property damage and constituted occurrences under the insurance policies. The insurer asserted that the carbon monoxide caused no physical damage and that Green's claim is essentially for faulty workmanship which is not covered by the general liability policy. The New Hampshire Supreme Court noted that it has previously held that defective work, standing alone, does not constitute an occurrence. The court said that a commercial general liability policy does not provide coverage for faulty workmanship that damages only the resulting work; the policy provides coverage if the faulty workmanship caused bodily injury or property damage to something other than the insured's work. Therefore, to constitute an occurrence, Green must have suffered damage to property other than the work, that is, the chimneys. But, the only repair work was done to the chimneys to correct the faulty workmanship.
As for the property damage issue, Green asserted that the entry of carbon monoxide into the homes was itself physical injury to tangible property; Green said that this was an alteration in a material dimension. The Supreme Court said that property damage occurs when there is physical, tangible injury so that the property is altered in appearance, shape, color or in some other material dimension. However, in this case, the court found that the carbon monoxide caused no physical, tangible alteration to any property. The homeowners did not suffer the loss of use of any property other than their chimneys, and the loss of use of the insured's work standing alone did not constitute an occurrence.
The ruling of the trial court was affirmed.
Editor's Note: This case is noted for two points of interest.
First, the New Hampshire Supreme Court ruled (in accordance with a majority of courts) that faulty workmanship that results in damage to the insured's own work is not an occurrence as defined in a general liability policy. A claim for faulty workmanship is covered if that work damages another's property, property other than the insured's own work.
Second, the court accepted the idea that an odor can constitute a physical injury if the odor permeates a building resulting in a loss of use of that building. There was no loss of use of any buildings in this case, but the court has established the guidelines for future cases that involve odors in a building being considered property damage as defined in a general liability policy.