Plaintiff 11 Essex Street Corp. made a claim for property damage to its building and for loss of business income under its insurance policy with defendant Tower Insurance Company of New York. Plaintiffs building allegedly suffered extensive physical damage on February 12, 2002, as a result of excavation and demolition at an adjacent construction project at 7-9 Essex Street, in New York City. Plaintiff alleged that large amounts of earth and bedrock were removed from the adjacent property without adequate precautionary measures to prevent damage to neighboring land and structures. Tower denied coverage, invoking several policy exclusions.

Tower moved for summary judgment dismissing the complaint based on a policy exclusion for negligent/faulty workmanship. Plaintiff cross-moved for summary judgment in its favor for breach of contract, and to strike defendants affirmative defenses.

Tower Cites Exclusion

Tower argued that the damage to plaintiffs building falls within the policys faulty workmanship exclusion because plaintiff is alleging that negligent construction at the adjacent project site caused damage to its building. Plaintiff argued that the exclusion applies only to property damage caused by its own faulty work. According to plaintiff, any contrary interpretation would violate Insurance Law 3404 (f) (1) (A), which provides for a minimum scope of coverage. In any event, plaintiff argued that the exclusion is ambiguous, and that the applicability of the exclusion cannot be determined now, because a jury has yet to find that the construction work at the adjacent site was negligently performed.

The tests to be applied in construing an insurance policy are common speech and the reasonable expectation and purpose of the ordinary businessman. (Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co). [T]o negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. It follows that policy exclusions are given a strict and narrow construction, with any ambiguity resolved against the insurer. (Belt Painting Corp. v. TIG Ins. Co.).

The faulty workmanship exclusion states, in pertinent part: We will not pay for loss or damage caused by or resulting from any of the following:Negligent Work - Faulty, inadequate or defective:Design, specifications, workmanship, repair, construction, renovation or remodeling, grading, compactionof part or all of any property on or off the described premises.

Exclusion Does Not Apply

In its moving papers, Tower cited no reported cases interpreting this exclusion, and the court did not find any reported New York cases addressing this issue. Courts in other states interpreting similarly worded exclusions have reached different conclusions.

Following the principles of construction, this court is persuaded that the faulty workmanship exclusion applies to situations only where the insured or someone authorized by the insured contracts for alterations to the property and is dissatisfied with the quality of the performance under that contract. Defendant itself cited a treatise that indicates that negligent work refers only to the insureds contractual undertakings, because insurance carriers seek to avoid insuring, or guaranteeing, the quality of the insureds contractual undertakings. Otherwisesuch an interpretation would leave the insurance policy practically worthless. Contrary to defendants argument, such an interpretation does not render the on or off the premises language superfluous. Work that is done off the premises of the insureds building can nevertheless become part of the property, such as woodwork or carpentry that is done off-site but is brought later to the insureds building.

The cases that defendant cited in its reply papers are inapposite, for they addressed the issue of whether the exclusion applied to the faulty workmanship of a subcontractor on the insureds property. Therefore, the faulty workmanship exclusion does not apply to the work performed on the adjacent property. Defendants motion for summary judgment dismissing the action is denied. [IA]

11 Essex Street Corp. v. Tower Ins. Co. of New York, NYLJ 12/15/05 (Supreme Court, New York County) (GOODMAN, j)