IN THE UNITED STATES DISTRICT COURT
Essex Insurance Company, )
)
Plaintiff, )
)
)
) Civil Action Number:
Vs. )
)
)
Erskine Cooley, Clarence Cooley, )
Cooley & Son et al. )
)
Defendants, )
RULE 26 (a)(2)(B) DISCLOSURE OF EXPERT
TESTIMONY OF JOHN J. O’BRIEN JD, CLU, CPCU
PERSONAL BACKGROUND
I am an insurance professional with considerable insurance experience in both personal lines and commercial lines insurance including commercial general liability lines. This experience ranges from education, teaching, work experience both in the field as an agent as well as in home offices of insurance companies and in addition in the management of insurance companies as CEO of my own insurance management company. My experience is reflected in the curriculum vitae which is attached and made a part of this document as Exhibit “A.”
In addition to my training as an attorney, I hold the two highest credentials
conferred both by the life and health insurance industry as well as the property and casualty insurance industry, namely, the Chartered Life Underwriter designation and the Chartered Property and Casualty Underwriter Designation.
In the area of insurance policy interpretation particularly in commercial general liability, I have participated to drafting these policies, studied them as part of my insurance training, taught classes regarding said policies, and been recognized as an expert on commercial general liability policies by various courts of law. I am familiar with the major treatises on commercial general liability policies and the commercial general liability polices of the Insurance Services Organization.
4. I have acted as a consultant in the area of commercial general liability
language, policy service and claims.
As owner of Charleston Captive Management Company during its operation, I dealt almost exclusively with commercial lines of insurance and their governance and compliance and served in the design and insurance of commercial risk. My team and I designed commercial insurance products on a national scale including, policy language, cancellation provisions and exclusions.
As an insurance attorney and through many years of insurance law practice as well as expert testimony and teaching, I am knowledgeable in the rules of insurance contract as well as insurance contract interpretation. Although I will refer to court opinions in my opinions, I do so to highlight analogous situations to the case before the Court and not as a lawyer would to establish precedent. I recognize that the Court does not require an industry expert to determine legal issues.
In addition to the background pointed out above, I am familiar and knowledgeable with the operation of a commercial lines insurance company and how one would operate in compliance with commercial insurance regulation and service providers they rely upon for guidance as to state by state compliance, policy language, and policyholder service forms and requirements. This includes an organization know as the Insurance Service Organization (ISO).
I have been accepted as an insurance expert by the state and federal courts
in South Carolina.
I have been retained by the Defendants’ counsel to assist the court in certain
areas of this case where my knowledge and experience might be beneficial.
NATURE OF OPINION EXPRESSED
I have been asked to express my opinion or opinions on the coverage
provided by Plaintiff insurance company’s commercial liability insurance
policy. This assignment will, I believe, entail my utilization of information,
experience, training, and practice from the disciplines of insurance law and
practice as well as from the insurance profession and industry standards
and customs and usage there. I consider myself qualified to assume this
responsibility.
INFORMATION CONSIDERED IN REACHING OPINIONS
The information supplied to me by counsel appears to be all the pleadings
and discovery of the case to date. I have on my own reviewed case law from
around the country, law reviews and treatises, material of Insurance Risk
Management, various treatises such as Commercial Liability Risk
Management by Don Malecki et al., George E. Rejda’s Priniciples of Risk
Management and Insurance, the Insurance Professionals Policy Kit and
other materials. Where I thought it might be helpful to the Court, I have
referred to various industry materials to support the opinions that I have
reached. Additional information and/or documentation might cause me to
modify my opinion but at this juncture, I cannot foresee what that
additional information could be.
BACKGROUND IN SUPPORT OF OPINION
I think it is important that the Court understand that almost uniformly, the
property and casualty insurance industry employs forms and rates
supplied by an organization know as the Insurance Service Organization.
It will be helpful to see how commercial and personal lines are delineated
by the Insurance Service Organization. These distinctions are uniformly
accepting by the insurance industry, regulators and insurance attorneys.
The personal lines insurance policies offered to the industry include
personal auto, homeowners, dwelling and personal inland marine. These
forms encompass the personal lines of insurance. These are the types of
insurance policies offered to individuals to cover real and personal
property. Commercial lines are those policies offered to businesses to cover
the property and liability of the businesses. Any coverage provided to
individuals under personal lines would be excluded under commercial
lines. The commercial policies offered by ISO include commercial auto,
crime, boiler and machinery, farm, commercial fire, general liability,
professional liability, inland marine, business owners, employee related
practices, market segments, commercial liability umbrella, capital assets
(output policy) and management protection.
I was first contacted to offer an opinion in the companion case of Mosley,
et al. v. Cooley, et al. The fact situation of that case as I understand it was
that Sonya Mosley and Aaron Stoddard owned a house with the address of
438 Speedway Drive, Fountain Inn, South Carolina, 29644. They
contracted with Cooley and Son House movers to have the house relocated.
Movement of the house apparently required that the house be cut into two
sections. After the house was relocated it was not put back together or
placed properly. I noted it was mentioned that someone else was supposed
to cut the house but that Cooley undertook to do this work himself. This
may have been outside of his normal operations as a house mover but was
part and parcel of the activities that would be covered by his insurance.
The scope of damages to the house included not properly repositioning the
house resulting in it being structurally unsound, sustaining major rain
damage because the house was not properly protected from the elements,
removing and not replacing support beams resulting in an unleveled floor
system and sagging of the roof.
Apparently the original contract to move the house was entered into on or
before July 25, 2006. The pleadings reflect different versions as to who was
responsible for various parts of the house move. In this opinion, I have not
made any determination of fact concerning these matters. I suspect that the
activity of house moving in itself is one where, because of its nature,
damages to the house structure and interior are likely to occur even when
the best practices are employed.
It was my understanding that Cooley and Son insurance company claimed
that the commercial general insurance policy did not provide coverage. At
the time I was asked to offer an opinion, I did not know if the insurance
company was relying upon a particular exclusion in denying coverage.
As an insurance expert, for purposes of determining coverage, duty to
defend and duty to indemnify, I typically review the pleadings and the
insurance policy. It appears that plaintiff has set forth a factual scenario
that included elements of negligence in not properly cutting the house, in
not provide sealing and covering to prevent rain from entering the house, in
improperly removing and not replacing interior supports, and not properly
setting in the house at the new location.
I was provided with a copy of the insurance policy issued to Cooley. I
reviewed the policy to see if the policy should provide coverage for the
damages to the house. The policy is written by Essex Insurance Company.
Essex is a wholly owned subsidiary of Markel Corporation. Markel
underwrites specialty insurance products nationwide. Essex is an excess
and surplus line carrier marketing light to medium loss exposures
specializing in general liability, product liability, property and tough- to-
place and unusual exposures.
Coverage will be determined based upon the four corners of the insurance
policy and perhaps the intent of the parties under the rules of
interpretation universally accepted by the courts in the interpretation of
insurance policies. Those rules of interpretation provide that the policy is a
contract of adhesion and must be interpreted to provide coverage whenever
there is ambiguity.
The policy is described as a commercial liability policy. The dec sheet
describes Cooley House moving as the Named Insured and Item 4 describes
Cooley’s business as “House Moving. It is significant that the business
description and the name of the insured disclose that the business of Cooley
is to move houses and all that that activity entails. The policy is designed as
a special lines policy that a person involved in house moving activities
would view as providing coverage for the risks inherent in his particular
business.
The Supplemental Declarations set forth the policy limits which are
essentially set at $300,000. This section provides after Products Completed
Operations Aggregate Limit the word “Excluded.” This is intended to
connote that there is no coverage for completed operations and it is a
standard provision.
The insurance policy describes the hazard insured against as “Building
Structure- Raising or Moving.”
The commercial general liability policy used by Essex is essentially the
Insurance Service Properties form. The insuring agreement duplicates that
form and would provide coverage for property damage caused by an
occurrence (accident) that takes place in the coverage territory unless
specifically excluded.
Without addressing the specific exclusions of the ISO form, in my opinion,
the policy would cover damages that result from occurrences during the
performances of Cooley’s house moving activities. The term occurrence is
important because if there is an occurrence that causes damage, then there
will be coverage.
It is important to note that Cooley is actually engaged more in a service
industry rather than in producing a product. He is not a contractor that
improves a property or constructs a property; rather, he moves houses.
The insurance he purchases should provide coverage for mishaps that occur
when Cooley pursues house moving operations while recognition is given to
the fact that the insurance company is not a guarantor of the good
workmanship of Cooley nor does the insurance company provide coverage
for breach of contract. Generally, a liability policy provides coverage for
only certain activities or sources of liability. Two approaches are possible:
Comprehensive liability insurance covers all activities or sources of liability
that are not specifically excluded.
Specific liability insurance contracts state the activity or source of liability
that is covered.
It is noteworthy that the policy specific referred to the activities that the
parties intend to cover, namely, house moving and it is also significant that
the company that offers the coverage is engaged in special lines business or
makes its markets by providing coverage designed for specific industries.
Faulty workmanship arising out of breach of contract is not generally
covered under a general liability policy; however, under a completed
operations hazard, accidental harm caused to other’s property by the
defective work product is covered.
Generally, there might be an argument that the cost to correct the work is
not covered. In the Cooley case that I reviewed, it appears that the damages
are substantially related not to the cost to correct the work but the cost to
repair and replace damages that resulted directly from the operations of
Cooley. Examples of this would be the extensive water damage cause by the
failure of application of material to protect the house from the elements and
the sagging caused to the house by not placing it properly and not
repositioning the interior supports. So for example the cost to replace the
interior supports would not be covered; however, the resulting damage
brought on by the negligent placement of the supports would be covered.
The claims for moisture damages here are not claims for the costs of re-
protecting the house but instead claim to repair the damages to the house.
These are not corrections to the work product of Cooley but are instead
damages caused to the property of another brought on by an occurrence,
i.e. the introduction of the elements into the interior of the house and these
damages were proximately caused by the negligence of the insured.
Also in my opinion I did entertain the notion as to whether Cooley, because
of the declarations sheet language, viewed this as a builder’s risk policy that
would have application in precisely the situations we have presented here.
The risks insured against were the risks presented in house moving. I
would suspect that Cooley felt that this was the type of coverage he was
buying.
Exclusions are part of the ISO policy. Those exclusions generally include:
Expected or intended injury;
Care, custody, or control exclusion;
Owned, rented, or occupied property exclusion;
Exclusion of property loaned to the named insured;
Exclusion of that part of the work on which operations are being performed; and
Exclusion of that part of the work that must be replaced because of faulty
workmanship on it.
Tort liability is not excluded. Although negligence is not specifically
mentioned, it is covered by the ISO commercial general liability form where
the insurer promises to: pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or “property
damage” to which this insurance applied…The “property damage” must be
caused by an “occurrence” and occurrence is defined in the policy as: “an
accident, including continuous or repeated exposures to substantially the
same harmful conditions.”
When initially retained I was informed that the insurance company claimed
that the damages to the Stoddard property was excluded under Cooley’s
policy although there was no letter from the insurance company setting
forth the exclusion the insurance company was relying upon. Consequently,
I reviewed the exclusions of the policy and make certain assumptions that
the insurance company might be relying upon that exclusion and then
addressed it.
The exclusion section of the insurance policy begins on page 2. Subsection
J contains the damage to property exclusion. The sections that might apply
are sections (5) and (6) which generally provide for no coverage to damage
to particular parts of real property where the insured is performing
operations and where the damage results from the operations. The damage
to product or work would not apply because the insured is not a contractor
that has manufactured the house.
A careful reading of the remaining parts of the insurance policy does not
demonstrate the existence of any exclusion that would apply.
This property damage exclusion would not apply because of its broad form
nature but also because the damage to property and damage to work
exclusions are eliminated by the addition of a combination contractor’s
endorsement. This is essentially an effort to provide coverage for a
contractor by modifying a commercial general liability policy rather than
having a stand-alone builder’s risk policy. The intent is to provide
coverage for negligent acts of a contractor like Cooley but not to become a
guarantor of his work.
The endorsement redefines “occurrence” to not include “defective work,”
defective workmanship, defective construction and negligent construction.
Again, in my opinion, the intent of this language is to preclude claims
relating to the work product of the contractor and have the insurance
company become a guarantor of the contractor’s work. It should not be
read to eliminate any coverage where the insured is pursuing his livelihood.
The history of the CGL policy is that pre-1986 damage to property that the
contractor was working on was excluded and then in 1986, this was
broadened and only the part of the property that the contractor was
working on was excluded - thus coverage was provided for the remaining
part. The underlying Cooley policy has the broad form post -1986
language. The contractor’s endorsement on the Cooley policy specifically
deletes the damage to property coverage; however, this is not an attempt to
restrict the coverage to pre-1986 treatment but instead should be viewed as
an expansion of coverage with specific terms to demonstrate and govern
how it would be applied to the activities of a house mover. For example,
coverage will not be provided if the insured does not check for weather
prior to opening a roof, water that comes from a broken pipe is excluded
and movement of the house while it is actually up on the vehicle moving it
is excluded. The use of the terms “water” and “rain” have significance. The
intent is to exclude water that leaks from devices or backs up from
plumbing systems and to exclude rain that is admitted say from open
windows. Attempts to eliminate rain that enters a structure because of
negligent efforts at preventing its entry would require a specifically worded
exclusion. The definition of occurrence is further modified but only to
reiterate that the insurance company is not a guarantor of the
workmanship of the insured. It is clearly the intent of the parties that
consequential damages that stem from the work of Cooley unless
specifically excluded are intended to be covered. Otherwise, there would be
no coverage provided by the policy at all. The coverage description
provided is not unlike the coverage discussed in a treatise on the CGL as
follows:
“Burlington cites Ohio appellate cases from the First and Eleventh
Districts to support its position. In Heile v. Herrmann,136 OhioApp.
3d, 351,736 N.E. 2d 566 (1st Dist. 1999), where the definition of
"occurrence" was identical to the definition at issue, the court held that
"defective workmanship is not what is meant by the term 'accident' under
the definition of 'occurrence.'" Id. at 354. This conclusion is based upon the
principle that "policies do not insure an insured's work itself; rather, the
policies generally insure consequential risks that stem from [*6] the
insured's work." Id. at 353. The Heile court also explained that CGL
policies are not intended to protect business owners from "business risks,"
which are those risks that are the "normal, frequent, or predictable
consequences of doing business, and which business management can and
should control or manage." Id. In Rombough v. Angeloro, 1998 Ohio App.
LEXIS 3510, No. 97-L-131, 1998 WL 553148 (11th Dist. 1998), the court
found that a claim of failure to perform in a workmanlike manner did not
allege an accident, and therefore did not allege an occurrence. 1998 Ohio
App. LEXIS 3510,[WL] at *1-2. Under this analysis, CGL policies "do not
insure an insured's work itself; rather, the policies generally insure
consequential risks that stem from the insured's work." Heile, 136 Ohio
App. 3d at 353.
Burlington also cites cases from the Supreme Courts of Iowa and New
Hampshire, and courts of appeal from Michigan and Arizona. 1 These cases
support the argument that "mere faulty workmanship, standing alone,
cannot constitute an occurrence as defined in the policy, nor would the cost
of repairing the defect constitute property damages." US Fidelity &
Guarantee Corp. v. Advance Roofing & Supply, 163 Ariz. 476, 482, 788
P. 2d 1227 (1989).”
This logic is expressed somewhat in a South Carolina Supreme Court case
involving Bituminous Insurance Company. However even in that case the
Supreme Court noted:
“The CGL policy may, however, provide coverage in cases where
faulty workmanship causes a third party bodily injury or damage to
other property, not in cases where faulty workmanship damages the
work product alone.”
The Cooley case is clearly a case where the homeowner is claiming
that faulty workmanship by Cooley damaged his home.
The contractor’s endorsement in providing coverage for the house moving
activities, as I have already noted, attempts also to limit or eliminate coverage
from events that historically have cause great damage in the contractor’s and
builder’s risk field i.e. EIFs and failure to determine weather conditions before a
roof is removed and replaced. The provisions of subparagraph (g) in the Essex
policy for example are enlightening. Implied in the language there is that there
would be coverage for exposing the interior of a house during a roofing job but
creates an obligation on the part of the insured to check weather conditions and
to securely cover the open roof during operations.
One would normally expect that in a house moving exercise, structural damage
as well as water damage from weather conditions would be a normal part of the
risk insured against. The language of the contractor’s endorsement lends weight
to the position that rain caused by the contractor’s negligence is covered. Water
seepage from inherent structural deflects like plumbing and EIFS are not
intended to be covered. This is affirmed in endorsements to the policy as well.
It is noteworthy is that the combination general endorsement states that
coverage is limited to the “business description’ in the dec section i.e. “house
moving” and that also the endorsement excludes from coverage that period after
a building is set on mobile equipment for moving and begins to be removed
from the mobile equipment at the new location implying that any mishaps that
occur outside that period are covered.
There is an additional endorsement that excludes the products completed
operations coverage provided in the original policy.
I concluded under my original review that Cooley was provided coverage for
mishaps or accidents that involve house moving but that there is no intent to
cover faulty workmanship. The insurance company will not pay to redo the
work of the insured. Again, this is for the same reasons as under the original
ISO policy that the insurance company should not become a guarantor of the
workmanship of the insured.
Unlike the South Carolina Bituminous case, Cooley does not have an actual
physical product that he delivers. He has tools and machinery and people that
he applies to other people’s property in order to move that property to a new
location. As he performs these functions, accidents and consequential damages
can occur which stem from the house moving activities, either stemming from
faulty workmanship or not, and that is the specific risk that the insurance
company has described as how the premium was set and the risk intended to be
insured. The Court must not lose sight of the fact that Cooley purchased
insurance and the insurance company sold him insurance that was intended to
cover bodily injury and property damage that were proximately caused by any
claimed negligence of the insured.
Subsequent to my original opinion, I have received a copy of the declaratory
judgment action filed by Essex Insurance Company. This document specifies
the exclusions that Essex Insurance Company is relying upon. They can be
summarized as follows:
1. Defective workmanship is not caused by an occurrence;
2. Contractual liability is excluded;
3. Defective work (your work) is excluded;
4. That particular part of real estate on which you are working is
excluded;
5. Invasion or existence of water and damage suffered in the course
of movement;
6. Again, the repeat of the damage suffered when the building is being
carried on a vehicle exclusion (the intent of this is to exclude situations
where other insurance might apply, i.e. commercial auto). This
exclusion is not applicable because the damage occurred after the house
was removed from the mobile equipment;
7. Leakage or overflow water exclusion; and
8. Pollution exclusion.
After reading all of these exclusions, my opinion is that coverage should still be
provided for the damage to the structure that was caused by the negligent actions
of the contractor or damages that can be traced to his negligence. For example if
he did not provide adequate protection – plastic or rain resistant material or did
not secure it properly, the resulting water damage is covered. If he did not
provide proper supports or set the house incorrectly and this resulted in further
property damage to the Stoddard property, there is coverage.
I can agree with Essex that there is no coverage for correcting the workmanship
i.e. replacing the supports; that there is no coverage for damage to the house
while being transported; that the insurance company does not become a
guarantor of the contract of its insured but they do provide coverage for the
damages that result from their insured’s negligence; that damage to the particular
part of real estate that is being worked on i.e. the contractor breaks windows or
doors while exerting too much pressure reinstalling them; that there is a
pollution exclusion but that it has no applicability in this case; that under certain
conditions water damage is excluded but that limited exclusion should not be
relied upon to state that the damage suffered by the Stoddard’s property caused
by the negligent placement and protection of the property is totally excluded.
Specifically, on the last point of water damage, if the ISO form intended to
exclude any and all rain damage or exposing third parties house negligently to
the elements, a specific exclusion clearly stating that would have to be drafted.
Essex seems to be claiming that the limited accidental discharge of water
exclusion would exclude coverage in this case.
The ISO material and International Risk Management material relates that the
limited water damage exclusion relates to: a. Flood, surface water, waves, tidal
water, overflow of a body of water, or spray from any of these, whether or not
driven by wind. Water which backs up through sewers or drains or which
overflows from a sump . Water below the surface of the ground, including
water which exerts pressure on or seeps or leaks through a building, sidewalk,
driveway, foundation, swimming pool or other structure and Water emanating
from appliance and the like.
This exclusion eliminates coverage of liability caused by various forms of water
damage at scheduled premises or at other premises from water discharges that
originate at the scheduled premises or from other related causes. Specifically,
the exclusion applies to leakage or overflow from plumbing, refrigeration, or
heating and air-conditioning system, appliances, or automatic sprinkler system.
Also excluded is damage caused by the collapse of a tank or other components
of a sprinkler system and damage caused by rain or snow that enters the
building through structural defects or open doors or windows.” The exclusion
does not apply to the damage suffered by the Stoddard’s.
Typically the exclusion specifies that it would apply to property owned by the
insured or occur from property owned by the insured:
"(m) under coverage B, with respect to division 1 of the Definition of
Hazards, and under coverage D, to any of the following insofar as any of
them occur on or from premises owned by or rented to the named insured
and injure or destroy buildings or property therein and are not due to fire: * *
(3) rain or snow admitted directly to the building interior through defective
roofs, leaders [***5] or spouting, or open or defective doors, windows,
skylights, transoms or ventilators.”
The reasoning used by another court in finding coverage under business
risk coverage for damage caused by rain is worth reading as it demonstrates
the reasoning applied by Courts to arrive at the conclusion that in analogous
situations, in applying the terms of a commercial general liability policy, an
occurrence or accident that is covered by the insurance policy was proven.
This is contrary to the Essex position that appears to be that there was no
“occurrence.”
“The evidence discloses that appellant commenced the roofing operations
on the Glover residence on the morning of October 16, 1956, and finished
on October 18, 1956. Appellant started working at approximately 7:30 or 8:00
A.M. on the morning of October 16, 1956, and about that time on said date he
telephoned the Weather Bureau and inquired if there was any reasonable
amount of assurance that there would be no moisture in sight for at least 24 to
30 hours. The Weather Bureau said "there is no rain in sight" and appellant
testified that the weather was clear at that time. Appellant also testified as to the
day of October 16, 1956, saying "It was a dry warm day and the sky was clear."
Appellant left the Glover operation about 5:00 P.M. and later about 6:30 or
7:00 P.M. on October 16, 1956, he telephoned the Weather Bureau again to
ascertain the forecast at that time. Appellant testified "it was the same forecast,
no rain in sight." On the night of October 16, 1956, or the early morning of
October 17, 1956, the rain occurred and the Glover residence was damaged.
Appellant testified on cross-examination that showers in October do not occur
too often, but in the summertime in July and August he has seen it happen quite
frequently. Appellant "considered October a pretty safe month for roofing in
this country," but that it did occasionally rain. Although it is not in the record,
the calendar for the year 1956 shows that October 16 fell on a Wednesday and
October 17 was Thursday.
The word "accident" is not defined in the insurance policy.
Appellant raises two points upon which it relies for reversal: (1) That the trial
court erred in granting appellees' motion for directed verdict for the reason that
a prima facie case had been made out by appellant; and (2) that it was error to
dismiss count two of appellant's complaint. Appellant contends that under the
factual situation in this case and the law applicable thereto, that appellant was
covered under its policy of insurance.
It has been held that where the term "accident" is not defined in the policy, the
term must be interpreted in its usual, ordinary and popular sense. M. Schnoll
and Son, Inc. v. Standard Accident Ins. Co., 190 Pa. Super. 360, 154 A.2d 431.
The term "accident" has been variously defined. In United States Mutual
Accident Association v. Barry, 131 U.S. 100, at page 121, 9 S.Ct. 755, at page
762, 33 L.Ed. 60, "accidental" is defined as meaning "happening by chance,
unexpectedly taking place, not according to the usual course of things, or not as
expected."
In Ocean Accident & Guarantee Corp. v. Penick & Ford, 8 Cir., Iowa, 1939, 101
F.2d 493, 497, the court said:
“In determining the meaning of the term 'accident', as used in this policy, the
question is not what it might mean to a scientist or one skilled in the subject
involved, but what it means to the average man. Lewis v. Ocean Acc. &
Guarantee Corp., 224 N.Y. 18, 120 N.E. 56, 7 A.L.R. 1129; Massachusetts
Bonding & Ins. Co. v. John R. Thompson Co., 8 Cir., 88 F.2d 825. Unless some
technical meaning was obviously intended, the words 'accident' and 'accidental'
should be given the meaning they impart in common speech. Lickleider v. Iowa
State Traveling Men's Ass'n, 184 Iowa 423, 166 N.W. 363, 168 N.W. 884, 3
A.L.R. 1295 * * *."
Webster’s New International Dictionary, Second Edition, Unabridged, defines
“accident” as follows:
"1. Literally, a befalling. a An event that takes place without one’s
foresight or expectation; an undesigned, sudden, and unexpected event.
'Of moving accidents by flood and field.' b Hence, often, an undesigned and
unforeseen occurrence of an afflictive or unfortunate character; a mishap
resulting in injury to a person or damage to a thing; a casualty; as, to die by
accident. c Chance; contingency.”
This court, speaking through Chief Justice Brice, in Stevenson v. Lee Moor
Contracting Co., 45 N.M. 354, 115 P.2d 342, 350, after reviewing many
authorities, including the English cases, stated:
"We are satisfied with the conclusions of these courts, and hold that
‘injury by accident' means nothing more than an accidental injury, or an
accident, as the word is ordinarily used. It denotes 'an unlooked for mishap,
or an untoward event which is not expected or designed.'
Citing Fenton v. Thorley, (1903) A.C. 443.
We also said in the Stevenson case:
"The test as to whether an injury is unexpected and so if received on a
single occasion occurs 'by accident' is that the sufferer did not intend
or expect that injury would on that particular occasion result from what
he was doing. The element of unexpectedness, inherent in the word
'accident' is sufficiently supplied either if the incident itself is unusual,
the act or conditions encountered abnormal, or if, though the act is usual
and the conditions normal, it causes a harm unforeseen by him who suffers
it."
My professional opinion is that is that while some of the exclusions might have
application on the Stoddard claim for example the correction of work performed
and might cause an adjustment in damages, none of the exclusions preclude
coverage. There is coverage for negligence and thus there was an occurrence
resulting in loss. Water damage claims caused by negligence of contractors in
not properly securing roofs are standard claims to be expected under a
commercial liability policy as are faulty workmanship claims where the claim is
not to cover correction of the faulty workmanship but claims for the damages
caused by the occurrence of the negligence and the resulting damage to a third
party’s property. The fortuitous event was the unforeseen and unexpected
damage that resulted from the negligence of Essex’s insured. Cases from other
domiciles are worth noting. In First Texas Homes, Inc. v. Mid-Continent
Casualty Co., Texas federal court held that allegations of negligent workmanship
were broad enough to allege an "occurrence," thereby giving rise to the duty to
defend. In this case, a homeowner sued his builder, First Texas, alleging that the
home was not constructed in a good and workmanlike manner and that the
foundation was insufficient. First Texas' insurer, Mid-Continent Casualty
Company, refused to provide a defense on the grounds that the petition did not
allege an occurrence under the policy. "First Texas then filed [a] declaratory
judgment action to determine the respective rights and duties of the parties under
the policy."
“The issue in the declaratory judgment action was whether the insurer had a duty
to defend First Texas in the underlying litigation. The policy defined
"occurrence" to mean "an accident, including continuous or repeated exposure to
substantially the same general harmful conditions." The court noted that "courts
have interpreted the term 'accident' in this context to include damage that is the
'unexpected, unforeseen or undesigned happening or consequence of an insured's
negligent behavior.'" The court then looked to a Fifth Circuit decision holding
that "defective performance or faulty workmanship by the insured that injures the
property of a third party is 'accidental under this definition.'" The court noted that
"a builder who failed to abide by the specifications of a contract, for example by
substituting a weaker building material, may, by that breach, produce expected
property damage to his or her work, and may thus fail to show a covered
'occurrence.'" The court explained that "the relevant inquiry is not whether the
insured damaged his own work, but whether the resulting injury or damage was
unexpected and unintended."
“In this case, the petition alleged that the home was "not of proper quality and
was not designed or constructed in a good and workmanlike manner and that the
foundation was insufficient and resulted in a foundation and home that were not
properly designed or built." The court noted that the allegations were broad and
any doubts about whether the petition alleged a covered cause of action must be
resolved in favor of the insured. Thus, the court concluded that the broad
allegations could be construed to support a claim that the damages were neither
expected nor intended by First Texas.”
“What about coverage of damages resulting from the contractor's inadequate work
such as mold growth from improperly applied stucco to a home? In Ind. Ins. Co.
v. Alloyd Insulation Co., the Delaware Library Board alleged that a roof,
installed by Alloyd Insulation Co., ("Alloyd") was faulty due to improper
workmanship and that the defects in the workmanship resulted in rust and
corrosion. The court held that defective workmanship is not covered by a CGL
insurance policy but that consequential damages such as rust and corrosion are
covered because such consequential damages are fortuitous. Although the CGL
policy did not cover costs of having Alloyd rebuild another roof, the policy did
provide coverage for the clean up of the rust and corrosion, as those costs could
not have been anticipated from Alloyd's faulty workmanship.
Applying the analysis in Alloyd in the context of mold claims, it is likely that
courts would hold that costs to re-install stucco resulting from the original
improper application of stucco would be barred pursuant to the "Your Work
Exclusion" in the contractor's CGL policy. However, the consequential damages
to repair or clean up mold from resulting water damage would be covered in a
CGL policy.”
CONCLUSION
I do not have a complete file on the damage aspect of the case nor the
statements or depositions of the parties. With the material I do have and
although there are disputed facts, it appears that the substantial damage resulted
from rain mitigation and having placing the house on a surface where it was not
properly supported and related incidents such as a tree fall. It is incumbent
upon the insurance company to do a thorough investigation and adjustment of
this claim. Based on the material I do have it appears for instance that Cooley
did take steps to shield the house from rain and also that he felt that perhaps
someone else was responsible for establishing the proper level at the new
location. In any case without my going into a detailed claim analysis, these
damages appear substantially to be consequential damages resulting from the
movement of the house by Cooley and that coverage should be provided under
his house moving liability policy. The resulting damages were not expected. If
there are claims for correction of work that is alleged to be faulty then that could
be sorted out from the overall claim but overall, the claim is not one where the
insurance company is being asked to correct the faulty workmanship of its
insured or one where the insurance company is being asked to become a
guarantor of the work of its insured. Therefore, it is a claim arising from an
occurrence or fortuitous event that is not clearly and unambiguously excluded
under the terms of the insurance policy. My conclusion is that coverage is
provided under the Essex insurance policy for the claims of the injured
homeowners
______________________________
JOHN J. O’BRIEN JD, CLU, CPCU
Sworn to and subscribed before me this
_________ day of April, 2009.
____________________________________
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