Aquatectonics, Inc. d/b/a Loebs & Gordon PoolCraft v.
The Hartford Casualty Insurance Company
Well, the attack on insureds via the restrictive definition of “occurrence” (a true double edged sword for carriers), continues to march forward this time right into the Empire State, a jurisdiction not known for a plethora of CD cases nor coverage opinions appurtenant thereto.
Aquatectonics, Inc. d/b/a Loebs & Gordon PoolCraft (“Loebs”) sought a defense and indemnity from its general liability carrier The Hartford Casualty Insurance Company (“Hartford”) arising out of an action brought by the project general contractor against Loebs for the negligent installation of glass mosaic tiles in a custom-built swimming pool which necessitated removal and replacement of the mosaic tiles. The tile work was performed by Top Tile, a subcontractor retained by Loebs. The sole measure of damages incurred was the cost to remedy the defective workmanship.
Hartford declined the tender asserting there was no “occurrence” within the meaning of the policy. In addition, Hartford declined coverage citing to the “Damage to Your Property” and “Damage to Your Work” exclusions. Loebs argued that as the work was performed by Top Tile, the Subcontractor Exception to the “Damage to Your Work” exclusion applied.
Ruling in favor of Hartford, the U.S. District Court for the Eastern District of New York held there was no “occurrence” as the property damage alleged – the “sub-standard” pool – arose out of faulty workmanship in the installation of the pool. Under New York law, as in a majority of jurisdictions, defective workmanship alone is not an “occurrence” under a CGL policy.
With no New York or Second Circuit authority cited in support, the district court gave little consideration to the argument by Loebs that there was a “reasonable possibility of coverage” under the Subcontractor Exception because the work was performed by a subcontractor.
Here’s the takeaway: The determination by the Aquatectonic court, at the outset, that damage solely to an insured’s work product (the glass mosaic tile installed in the custom-built swimming pool) was not caused by an “occurrence” ended the coverage discussion. By concluding that coverage was not owed, because the “occurrence” requirement of the Insuring Agreement had not been satisfied, the exclusions did not need to be reached. In particular, there was no need for the court to reach the “Your Work” exclusion which really means that there was no need for the court to do a thorough analysis of the “Subcontractor Exception” to the “Your Work” exclusion. As a result, despite the fact that the pool installation contractor used a subcontractor to install the mosaic tiles, coverage nonetheless remained unavailable for damage caused by the work of the subcontractor.