CM Attorneys Obtained Summary Judgment
On A $14+ Million Design Defect/Ensuing Loss Claim
January 19, 2007
Clausen Miller Partner Andrew C. Jacobson successfully obtained summary judgment from a Nassau County Court in Uniondale Realty Associates v. The Hartford Ins. Co., Lexington Ins. Co., Illinois Union Ins. Co., et al., Case No. 585/06. The case in question arose from a property coverage dispute involving an all-risks policy, when an under-slab plumbing system fell away from the slab at a supermarket located in Uniondale, New York. Plaintiff alleged that only the supporting hooks for the plumbing system were defectively designed and/or faultily installed, and thus, excluded for coverage. Plaintiff, however, further alleged that it incurred in excess of $14 million in damages from its ensuing loss of the pipes as a result of the defectively designed plumbing system or faulty workmanship in the installation of the plumbing system. CM moved for summary judgment based upon the policy's design defect/faulty workmanship exclusion along with the policy provision requiring prompt notice of loss. CM argued that while there may have been a dispute between the architect who designed the plumbing system and the plumbing company that installed the system as to who was responsible for the system's failure, it made no difference to the insurers because the policy specifically excluded both defective design and faulty workmanship. CM also argued that the ensuing loss exception to the design defect/faulty workmanship exclusion was inapplicable as a matter of law as New York requires that an ensuing loss must be to wholly separate covered property from a separate and independent covered peril. The Court agreed with CM and granted summary judgment disposing of Plaintiff's complaint. In agreeing with CM, the Court found that the ensuing loss exception to the Policy's design defect/faulty workmanship exclusion requires damage to wholly separate property from a separate and independent covered peril. In this case, the Court disallowed coverage for the alleged ensuing loss because it directly related to the original excluded risk. The Court found that the original damage was the falling away of the plumbing system, which was not separate and extraneous to the failure of the support hooks, the very purpose of which was to prevent a plumbing system collapse as the soil settled. Accordingly, the Court found that the plumbing system, which was held up by the support hooks, could not be considered wholly separate from the support hooks. Learning Point: The fundamental point this Court and others like it made was that the Policy intends to exclude damages caused by defective design/faulty workmanship, and courts will not allow an insured to eviscerate the exclusion through the ensuing loss exception. Moreover, courts have also warned that an insurance policy does not operate as a warranty for faulty workmanship and should not be transformed into a guarantee against design and construction defects. For more information on defending design defect/faulty workmanship/ensuing loss claims, please feel free to contact Andy at ajacobson@clausen.com.
