“Ongoing Operations” Exclusionary Language In A CGL Policy Entitles Insurance Company To Deny Coverage
April, 2011
In Ohio Cas. Ins. Co. v. Island Pool & Spa, Inc., 2011 N.J. Super. LEXIS 26 (App.Div. Feb. 9, 2011), plaintiff, Ohio Casualty Insurance Company ("Ohio Casualty") filed suit against defendant insured, Island Pool and Spa, Inc. ("Island Pool"), seeking a judgment that it was not obligated to indemnify Island Pool under a CGL policy, due to exclusionary language in the policy. The trial court found in favor of Island Pool, holding that it was entitled to indemnification. On appeal, the Appellate Court reversed the trial court and determined that the exclusion applied to bar coverage.
Defendant Island Pool was a company in the business of installing and maintaining swimming pools. Id. at 2. Island Pool was hired by a homeowner to repaint an in-ground swimming pool. After emptying the water from the pool in order to repaint it, Island Pool installed a temporary pump to prevent subterranean water from exerting pressure on the pool. Id. The temporary pump subsequently failed during a torrential rainstorm. Id. As a result, the pool lifted out of the ground and cracked. Id. The damage could not be repaired. Id. Additionally, the incident caused a great deal of damage to the adjoining decking and landscaping. Id. Island Pool repaired the damage by building a new pool for the homeowner, as well as replacing the decking and landscaping. Id. The total cost of repairs was $89,315.65. Id. Island Pool submitted its expenses to Ohio Casualty and requested coverage and indemnification. Id.
Ohio Casualty informed Island Pool that it would provide coverage for the $20,075.00 to replace the landscaping and $11,530.00 for the decking repairs. Id. at 3. However, it declined coverage for the pool based on exclusion j(5) of the CGL policy. The j(5) exclusion, in pertinent part, stated as follows:
This insurance does not apply to:
j. Damage to Property
"Property damage" to:
* * *
5. That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of these operations. Id.
Ohio Casualty agreed to pay for the landscaping and decking repairs because the j(5) exclusion only applied to the "particular part" of the property on which the insured was "performing operations." Id. Ohio Casualty determined that Island Pool was only "performing operations" to the pool when the damage occurred, therefore the landscaping and decking were not excluded under the j(5) language. Id.
Ohio Casualty moved for summary judgment, seeking a declaration that it was not required to provide coverage to Island Pool. Id. Island Pool cross-moved, arguing that the carrier was required to provide coverage and the exclusion did not apply. Id. The trial court granted summary judgment in favor of Island Pool. The Judge held that Ohio Casualty's reliance on the case of Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 (1979), was misplaced because Ohio Casualty characterizes the pool as the subject of faulty workmanship; by contrast, the Judge found that Island Pool was not selling, installing or repairing the pool, but merely repainting it. Id. at 4-6. In Weedo, the court held that the insurer was not obligated to cover a loss that resulted from the insured's faulty workmanship. Id. at 7. The Judge further opined that Island Pool's negligence caused by painting led to the damage to the pool, decking and landscaping, and therefore, were covered under the policy. Id. at 6. The Judge also awarded counsel fees to the Island Pool. Id.
On appeal, Ohio Casualty argued that the trial court erred in relying on the principles articulated in Weedo. Id. at 7. Rather, the carrier's position was based entirely on distinct policy terms, specifically the j(5) exclusion. Id. Ohio Casualty maintained that all it needed to prove for a denial of coverage was that Island Pool was performing operations on the pool and these operations were ongoing at the time the damage occurred. Id.
The Appellate Court agreed with Ohio Casualty. The Court held that the trial judge erred in his reliance on Weedo rather that the "ongoing operations" exclusion in subsection j(5) of the policy. Id. at 13-14. The Court found that the damage to the homeowner's real property (the pool) indeed occurred while Island Pool was "performing operations" (the repainting process) and the damage "arose out of those operations" (the pump failed). Id. Thus, the j(5) exclusion entitled Ohio Casualty to deny coverage. Id. at 23. In reaching its decision, the Court analyzed the purpose behind such exclusionary clauses in CGL policies. Id. at 19-22. The Court explained that due to a CGL carrier's potentially broad exposure to such a wide variety of risks, carriers have attempted to narrow the scope of their liability. Id. Accordingly, risks other than unexpected and unpredictable accidents, such as a breach of contract or liability for business torts, are not covered by CGL policies. Id. Moreover, a CGL policy is not intended to insure business risks that are a consequence of doing business and which a business can control. The "Ongoing Operations" exclusion, as set forth in j(5) of the policy at issue, is one type of exclusion developed by the insurance industry to accomplish the goal of avoiding unlimited liability. Id. The Court noted that while no New Jersey court has interpreted this particular exclusion, other jurisdictions, such as Florida (American Equity Ins. Co. v. Van Ginhoven, 788 So. 2d 388 (Fla. Dist. Ct. App. 2001)) and Illinois (Pekin Ins. Co. v. Willett, 301 Ill. App. 3d 1034 (Ill. App. Ct. 1999)), both concluded on nearly identical facts that such exclusionary language barred coverage. Id. at 16-19.
Learning Point
In reaching its decision, the Appellate Court interpreted the exclusionary policy language in the broader context of the purpose of a CGL policy-finding that a CGL policy does not insure against all risks, and courts will not find coverage if the risks include predictable business risks which can be controlled and managed by a business. Additionally, a court will interpret an "Ongoing Operations" exclusion in a carrier's favor if the following questions can be answered affirmatively: (1) is the claim for damage to "real property"; (2) was the insured, or someone working on behalf of the insured, performing operations on "that particular part" of the property that was damaged; and (3) did the damage occur while the operations were being performed?
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