Pollution, Faulty Work, and Ensuing Loss
May 11, 2015
This case deals with a claim involving the spread of silica dust caused by alleged faulty workmanship and the ensuing loss exception. This case is Broome County v. The Travelers Indem. Co., 125 A.D.3d 1241 (2015).
Travelers issued a first-party insurance policy to Broome County covering a building in a government complex. During construction of a parking garage underneath the building, construction work caused silica dust to migrate up an elevator shaft and disperse into all of the floors in the building. A claim was made to the insurer for the damage, but Travelers disclaimed coverage. Broome County filed a lawsuit and the insurer moved for summary judgment; the insured cross-moved for summary judgment. The trial court denied both motions and this appeal followed.
The Supreme Court, Appellate Division, Third Department, New York, noted that Travelers claimed the pollution exclusion in the policy precluded coverage. The court agreed. The court said that the record contains unrebutted evidence that silica dust can cause lung disease and respiratory problems so silica dust is clearly an unhealthy and hazardous building material as well as a solid irritant or contaminant. The insured had argued that the words of the pollution exclusion, namely, “the discharge, dispersal, migration, release, or escape” were terms of art in environmental law referring to damage caused by disposal or containment of hazardous waste and so, the pollution exclusion in this instance did not refer to the short migratory events of the silica up the elevator shaft simply causing damage to the inside of the insured's building. The court disagreed and said the only reasonable reading that gives the pollution exclusion a meaning in this case precludes coverage for the loss at issue.
The insurer also claimed summary judgment based on the faulty workmanship clause. The faulty workmanship exclusion applied to loss or damage caused by or resulting from faulty, inadequate, or defective workmanship, repair, or construction. The insured conceded that the loss here resulted from the absence of adequate protective barriers to prevent construction dust from infiltrating the elevator shaft and the building. And, the court noted that the unrebutted record established that a flawed process on the part of the contractors led to the loss at issue.
The insured claimed that the exclusion was ambiguous due to the different definitions of “workmanship”, but the court said that, considering the term “workmanship” in context leads to the reasonable conclusion that the relevant clause unambiguously excludes losses from faulty workmanship, regardless of the different definitions. The court said that the average insured would reasonably expect the exclusion to apply to faulty workmanship whether it was caused by a flawed process or measured by the flawed quality of the finished product. Contrary to the insured's argument that the exclusion is ambiguous because a term within it can be read in two different ways, the court decided that an ambiguity is not created if the policy is written to exclude coverage under both definitions.
The court then addressed the ensuing loss exception to the exclusion. The court found that where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk. The faulty workmanship here was the failure to erect adequate dust barriers and the resulting loss came from the spread of dust. Thus, said the court, the loss was directly related to the original excluded risk.
The court ruled that based on the pollution exclusion and the faulty workmanship exclusion and the absence of any ensuing loss exception, the insurer was entitled to dismissal of the complaint and entitled to summary judgment.
Editor's Note: The Supreme Court, Appellate Division, New York reviewed the pollution exclusion and the faulty workmanship exclusion and ruled that silica dust is a pollutant and the release of the silica dust was caused by faulty workmanship. Thus, coverage for the insured in this first-party claim was properly denied by the insurer.