A Massachusetts Appeals Court has ruled that an insurance company is responsible for insuring alleged property damage caused by its subcontractor client, vacating an earlier Superior Court decision that the insurer has no duty to defend the subcontractor in this case.
The case, All America Insurance Company vs. Lampasona Concrete Corporation, came about after the construction of Beverly Hospital, owned by Northeast Hospital Corporation (NHC).
Following construction of the hospital, NHC filed a complaint in Superior Court against the general contractor, Dacon Corporation, alleging property damage to the finished first floor and other areas of the hospital.
Dacon then filed a third-party complaint against various subcontractors, including Lampasona Concrete Corporation, for improper installation of the concrete slab underneath the finished first floor.
In a separate action, Lampasona’s insurer – All America Insurance Company – filed a complaint contending it has no duty to defend Lampasona under its comprehensive general liability (CGL) policy.
A Superior Court judge initially concluded that Lampasona’s work on the concrete slab was inseparable from the work other subcontractors performed on other layers of the flooring system, determining that an exclusion to the CGL policy applied and allowing summary judgment in All America’s favor.
The Appeals Court, however, vacated that judgment and remanded for further proceedings.
In the Appeals Court opinion, Associate Justice James R. Milkey wrote that the first floor of the hospital has at least three layers – a bottom vapor barrier, the concrete slab and a top layer of either tile or carpet. While Lampasona installed the concrete slab, different subcontractors installed the other two layers.
In the action NHC brought against Dacon, NHC alleges Lampasona made multiple errors installing the concrete slab. These errors included puncturing the vapor barrier, which allowed moisture to pass through into the concrete slab, and improperly mixing fiber reinforcement into the concrete, which contributed to moisture wicking to the surface. The moisture problems caused damage to the tiles and carpet, according to NHC’s complaint.
Under the CGL policy issued to Lampasona, All America agreed to pay all “sums that the insured becomes legally obligated to pay as damages because of…’property damage’ to which this insurance applies,” according to Milkey’s opinion.
In order for the insurance to apply to property damage, the damage has to be caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” the opinion document added.
A Superior Court judge initially granted summary judgment in All America’s favor, deciding that the policy excluded coverage for any damage that resulted from the pierced vapor barrier.
All America argued in trial court and on appeal that there was no separate occurrence that could trigger coverage. According to All America, a claim against Lampasona would be for faulty workmanship, which would not be covered in the CGL policy.
Appeals Court Decision
However, the Appeals Court found that the claim is not that Lampasona’s work was faulty and needs to be replaced, but that the work caused damage to particular parts of the hospital property outside of its own work, fitting within the definition of an occurrence.
Additionally, the Appeals Court found that the exclusion only applies to damage to Lampasona’s work, and the alleged property damage in this case was to other subcontractors’ work. The Appeals Court also noted that an exclusion does not apply to damage that occurred after Lampasona completed its work.
“NHC has alleged that some of the damage occurred after the construction of the hospital,” Milkey wrote in the opinion. “Such damage would not fall within the scope of the exclusion in any event.”
For these reasons, the Appeals Court concluded that the Superior Court judge was incorrect in ruling that All America has no duty to defend or indemnify Lampasona for the claims that NCH has brought. The Superior Court decision was vacated and remanded for further proceedings consistent with the Appeals Court’s opinion.
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