The Fine Print: Untangling Insurance Coverage Overlap

hurricane_katrina_as_seen_0-1024x640Dealing with the elements is an inherent part of construction work. Yet, sometimes the elements get unexpectedly unruly. This is where insurance is supposed to step in and compensate for delays or damage. In the following case, however, overlapping insurance policies made determining who should step up difficult. 

Gibbs Construction, L.L.C was the general contractor for appellant National Rice Mill, L.L.C. Rice Mill hired Gibbs to renovate their new luxury apartment complex, Rice Mill Lofts. Gibbs hired Rush Masonry, Inc. as a subcontractor tasked with restoring the masonry related to the renovations. Before the renovation, Westchester Surplus Lines Insurance Company issued Rush Masonry a commercial general liability policy. This policy covered the restoration from February 2011 to February 2013. On top of the CGL coverage, the Fireman’s Fund Insurance Company also issued an excess liability policy to Rush Masonry during the same time period. A Zurich American Insurance Company CGL policy issued to Gibbs, the general contractor, also covered the restoration. The Zurich policy was in effect from January 2011 to January 2013. 

During the restoration, the construction site experienced three instances of water intrusion. The first occurred during a thunderstorm in July 2011, and the second happened during Tropical Storms Lee and Isaac. General contractor Gibbs filed a lawsuit against Rice Mill for failure to make payments under the general contract. Rice Mill counter-claimed against Gibbs, Rush, Zurich, and other parties. 

Fireman’s Fund then filed a motion for partial judgment, arguing that the Westchester CGL policy was responsible for the damage caused by Tropical Storm Lee and Hurricane Isaac because Westchester’s policy was in effect during the damage. Fireman’s Fund and Zurich also filed a motion for partial summary judgment because Rice Mill’s claims of damage to “your work,” delay damages or reduction in contract price by liquidated damages, rent concessions, loss of business reputation, and mold remediation are not “property damage” as required for coverage under the respective Fireman’s Fund and Zurich policies. The trial court agreed, granting partial summary judgment in favor of the Fireman’s Fund and Zurich. 

Rice Mill appealed to the Fourth Circuit Court of Appeals, alleging that the trial court erred when it (1) granted partial summary judgment, dismissing claims for particular categories of damages, and (2) granting partial summary judgment, finding that the water intrusion constituted two occurrences. The Fourth Circuit Court of Appeals reviewed the case under the de novo standard following Kennedy v. Sheriff of E. Baton Rouge. The Court was also mindful of La. C.C.P. art. 966(A)(3), which provides that “After an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law.” La. C.C.P. art. 966(A)(3)

The Fourth Circuit Court of Appeals reversed the trial court, holding that it erred when it failed to determine whether any policy exclusions precluded Rice Mill’s claims. Thus, the Fourth Circuit Court of Appeals remanded the case for further discussion on whether the “impaired property” exclusion applied. The Fourth Circuit Court of Appeals also noted that the Fireman’s Fund did not meet its burden of proving the two occurrences of water intrusion and was, therefore, not entitled to judgment as a matter of law. 

In the realm of construction, the unpredictable nature of the elements poses a constant challenge. When insurance policies intertwine, and claims arise, it takes a skilled legal team to navigate the murky waters and clarify the situation. The case of Rice Mill Lofts serves as a reminder that in the aftermath of storms and insurance dilemmas, competent attorneys play a vital role in untangling liability and securing the compensation and resolution that construction projects and their stakeholders rightfully deserve.

Additional Sources: Gibbs Construction, L.L.C. v. National Rice Mill, L.L.C. 

Written by Berniard Law Firm Writer Riley Calouette

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