Pollution Exclusion Does not Apply to Sewage Loss

Posted on November 12, 2009 by Mark Nation

On Tuesday my client was granted summary judgment against Nationwide on the issue of coverage.  I originally blogged on this case on February 16, 2009, when we filed suit. 

Our client maintains and services sewage lift stations. He purchased a "Contractor's Liability Insurance Policy" from Nationwide Insurance in order to protect himself against claims arising out of his business operations.  Nationwide clearly knew that its insured maintained and serviced sewage lift stations, as that information was set forth in the application and the premiums were based on the proposed insured’s SIC designation as a lift station maintenance company.  Nationwide wrote the policy and charged a rather high premium for the liability insurance.  According to Nationwide's underwriting documents, the liability premium was calculated based on the fact that my client was involved in the business of "septic tank installation, repair and maintenance."  Nationwide offers this type of "Contractor's Liability" policy to 32 different kinds of contractors, and the premium charged for sewage related work is only exceeded by the premium charged to those involved involved in excavation work - an ultra hazardous activity. 

During the policy periods, a bank which utilized a lift station serviced by our client was flooded with a backup of raw sewage. As hard as it is to believe, the bank took offense, and filed suit against our client for negligently maintaining the sewage lift station. The insured presented the claim to Nationwide Insurance to defend and indemnify, if necessary.

Nationwide denied the claim, claiming that the policy did not cover any losses dealing with sewage.  Nationwide tried to exclude coverage under its “pollution” exclusion.  The pollution exclusion does not specifically state that sewage is pollution.    

I filed suit for breach of contract. Section 627.419(1) states that the application for insurance is part of the policy and can expand, extend and modify the coverage provided under the policy.  In this case, the application identified the insured as being in the business of sewage, and Nationwide charged and collected a premium based on the fact that my client dealt with sewage. 

On Tuesday, the Seminole County Circuit Court heard cross motions for summary judgment and ruled that the Policy does indeed cover this loss.  The Court held that the policy as modified by the application provided the insured with liability coverage for losses dealing with sewage. 

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Victory in the Eleventh Circuit Concerning Coverage and Extra-Contractual Damages

Posted on May 28, 2009 by Mark Nation

In an earlier blog concerning this case, I noted we represented two large car dealerships who had been sued in major class actions.  Universal Underwriters Insurance Company insured both dealerships.  The dealers asked Universal Underwriters to defend and indemnify them for the claims in the class actions. Universal agreed to defend the claims, but advised that even though the class actions covered multiple years, the dealers were only entitled to indemnity coverage under one of policy years. Each dealer carried $500,000 in indemnity coverage per year for most of the years involved in the class actions. Therefore, it was Universal's position that the dealers were only entitled to $500,000 in coverage, while the dealers believed that they were entitled to up to the full policy limits per year for each of the years involved in the class actions.

One of my clients also sued Universal for breach of contract for failing to settle the class action when Universal could have settled the claim for slightly more than the $500,000 which it believed was available to pay for damages, but significantly less than what the court ultimately determined were the actual policy limits.  (I did not sue for "bad faith," but filed a simple breach of contract claim for breaching the contract by failing to settle when the insurer could have done so below the actual policy limits.)  Universal defended by claiming that we were actually suing for "bad faith," and could not do so given its reasonable belief concerning its available policy limits. 

Last week the 11th Circuit gave us a complete victory on the two issues involved in the case.  First, the11th Circuit agreed that the car dealers were entitled to the available policy limits for each of the years involved in the class actions.  Second, the court held that the breach of contract action for failing to settle could proceed regardless of Universal's "good faith or bad faith."  The court noted that whether Universal breached the contract can be determined "objectively" without regard to Universal's intent or belief.  A copy of the decision can be downloaded by clicking here

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Suit Filed on Behalf of Water Extraction/Remediation Firm Against Condo Association's Insurer for Failing to Pay

Posted on March 19, 2009 by Mark Nation

My client, a water extraction/remediation firm, was retained by a condominium association to assist with a large water loss. The water extraction firm agreed to perform the work, and the association assigned to it any claims against the condo association’s insurer in the event the insurer failed to pay – which is exactly what happened. (Many of my clients who are vendors take this type of assignment so that they can pursue the insurance claim and the insured does not have to go to the trouble).

This is another case where the insurer has not technically "denied" the claim.  They have simply done nothing after having the claim for months.  Suit was filed this week against the condo associations insurer for breach of contract.

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Suit Filed on Behalf of General Contractor for "Resulting Damage" from Subcontractor's Negligent Work

Posted on March 16, 2009 by Mark Nation

This week I was retained by a general contractor who subcontracted out roofing work on a large construction project. The Sub negligently installed the roof, which resulted in significant water and mold damage to the interior of the structures. The Sub agreed to replace the roof.  However, the general contractor has paid to repair and replace all of the interior damage.

The general contractor submitted a claim for the interior damage to its Commercial General Liability Carrier.  The insurance company has essentially ignored the claim – neither paying or denying the claim after having it for months.

In exasperation, the general contractor retained me this week to pursue the claim. Suit has been filed seeking reimbursement under the liability potion of the CGL policy for the damage resulting from the leaking roof.
 

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The Nation Law Firm Pursues Claim in Pollution Exclusion Case Against Nationwide Insurance

Posted on February 16, 2009 by Mark Nation

Our client maintains and services sewage lift stations. He purchased liability insurance from Nationwide Insurance. Nationwide clearly knew that its insured maintained and serviced sewage lift stations, as that information was set forth in the application and the premiums were based on the proposed insured’s SIC designation as a lift station maintenance company.

Some time later, a bank which utilized a lift station serviced by our client was flooded with a backup of raw sewage. As hard as it is to believe, the bank took offense, and filed suit against our client for negligently maintaining the sewage lift station. The insured presented the claim to Nationwide Insurance to defend and indemnify, if necessary.

Nationwide, contrary to its many promises, on air and in print, sent a letter emphatically explaining to its insured that it was in fact NOT “on your side.” The claim was denied by Nationwide citing its “pollution” exclusion.

I filed suit for breach of contract. It is my position that the pollution exclusion does not apply for 3 reasons: 1) raw sewage does not fit the definition of “pollution” as set forth in the policy; 2) even if raw sewage was “pollution,” the exclusion requires that the insured be in the business of handling, or abating pollution, which our client was not; and 3) the insurance policy (which by statute incorporates the application for insurance) was intended by the parties to insure claims arising from sewage spills, and Nationwide is prohibited from excluding the very thing for which the insurance was sought.

I suspect that this case will be decided on summary judgment in the very near future.
 

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Florida Supreme Court Gives Insight Into When a General Contractor's CGL Insurance Policy Provides Coverage for a Subcontractor's Faulty Workmanship

Posted on December 28, 2007 by Mark Nation

The Florida Supreme Court has recently issued two opinions which shed light on whether standard form commercial general liability (CGL) insurance policy covers a general contractor's liability for defective work performed by its subcontractor.  

On the same day, the supreme court issued its opinions in U.S. Fire Ins. Co. v. J.S.U.B., Inc., 2007 WL 4440232 (Fla. December 20, 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 2007 WL 4440389 (Fla. December 20, 2007).  Both cases involved interpretation of the "occurrence" and "property damage" provisions of standard form CGL insurance policies with "Products Completed Operations Hazard" coverage.  In both cases, the insurance company had denied coverage claiming the subcontractor's faulty workmanship was not an "occurrence" and did not cause "property damage."

In J.S.U.B., after a general contractor completed the construction of several homes, damage to the foundations, drywall, and other interior portions of the homes appeared due to subcontractors' use of poor soil, improper soil compaction, and improper testing.  The contractor sought coverage under its CGL policies, and the insurance company denied coverage.  The contractor instituted a declaratory judgment action to see whether the insurance policy provided coverage. 

The issue presented to the court was "whether a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage, issued to a general contractor, provides coverage when a claim is made against the contractor for damage to the completed project caused by a subcontractor's defective work."  Id. at 6.  The court addressed the issue in two parts, and held: faulty workmanship that is neither intended nor expected from the standpoint of the contractor can constitute an "occurrence" under a post-1986 CGL policy; and the subcontractors' defective soil preparation caused "property damage" within the meaning of the policy.  The court specifically noted "[i]f there is no damage beyond the faulty workmanship or defective work, then there may be no resulting 'property damage.' "  Id. at 14.  The court determined the claims were covered by the insurance policy.

In Auto-Owners, a general contractor constructed a multimillion dollar house in Coconut Grove, Florida.  The house's windows were defectively installed by a subcontractor, causing water leakage around the windows.  The contractor's insurance company tried to avoid coverage, arguing the subcontractor"s defective installation was not an "occurrence", and the resulting damage was not "property damage", as those terms were defined by the policy.  The court applied the J.S.U.B. analysis regarding whether faulty workmanship constituted an "occurrence" under a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage, issued to a general contractor.  However, unlike J.S.U.B., the court agreed with the insurance company and found the defective installation was not "property damage", precluding coverage under the insurance policy.

The court clearly distinguished J.S.U.B., on the basis that it involved a claim for costs to repair damage caused by the subcontractor's defective work, and Auto-Owners involved a claim for costs to repair or replace the defectively installed windows.  The court recognized a difference between a claim for the costs of repairing or removing defective work (such as replacing defectively installed windows in Auto-Owners) which is not a claim for "property damage", and a claim for the costs of repairing damage caused by the defective work (such as cracks in the walls due to settling from improperly compacted soil in J.S.U.B.) which is a claim for "property damage."  The court held because the subcontractor's defective installation of the windows was not "physical injury to tangible property," there was no "property damage" under the terms of the CGL policies and no coverage for the costs of repair or replacement of the defective work.

These cases provide valuable insight into when an insurance company has a duty to defend and indemnify general contractors under a commercial general liability insurance policy for subcontractors' faulty work.

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