In a recent victory in their home state of Connecticut, Saxe Doernberger & Vita partners, Jeffrey Vita and Theresa Guertin, representing owner-developer 777 Main Street, LLC, overcame a summary judgment motion filed by Liberty Mutual Fire Insurance Company. The Connecticut Superior court refused to adopt the insurer’s broad interpretation of the “faulty workmanship” exclusion in an all-risk builders’ risk insurance policy.
In 2014, 777 Main Street, LLC began renovations on the 27-story former Hartford National Bank building in downtown Hartford, converting the property from an office building to a mixed residential and commercial space. During the renovation, a subcontractor hired to perform the cleaning the concrete façade of the building accidentally over-sprayed the cleaning material onto the property’s windows. The subcontractor’s attempts to clean the overspray further damaged the structural integrity and cosmetic look of the windows. As a result, the owner was forced to replace over 1,800 windows, costing millions.
As is typical for most construction projects, the owner had purchased an all-risk builder’s risk insurance policy from Liberty Mutual Fire Insurance Company (“Liberty Mutual”) to protect its interests while the property was undergoing renovations. Since the property was an existing structure and not new construction, the policy included a “Rehabilitation and Renovation Coverage Endorsement,” which extended coverage to the existing building and portions not undergoing renovations, such as the windows.
Despite the grant of coverage afforded by the policy and its endorsements, Liberty Mutual denied coverage for the loss in its entirety, citing the policy’s “Defects, Errors, and Omissions,” exclusion, commonly referred to as the “faulty workmanship” exclusion. After nearly two years of litigation in Connecticut Superior Court, Liberty Mutual filed a motion for summary judgment in which it claimed that the exclusion broadly applied to any loss caused by any act of renovation—despite the fact that the policy was intended to cover a renovation project. The subcontractor, it claimed, was obligated to perform its work in a careful manner, and its failure to do so landed the loss squarely within the exclusion.
Noting the absurdity of the insurer’s argument, the owner (represented by SDV) argued that the damage to the windows was not faulty workmanship because the subcontractor’s scope of work did not include the windows. Rather, its work was limited to cleaning the façade, and its accidental over-spraying of cleaning materials onto the windows constituted the exact type of accidental damage the builder’s risk coverage was intended to cover. Furthermore, expanding the exclusion’s reach to include the windows would require the court to take a broad view of the exclusion, contradicting well-established insurance jurisprudence which requires that exclusions be interpreted narrowly.
The Court (Moukawsher, J.) denied Liberty Mutual’s motion and, subsequently, granted the owner’s motion. In its decision, the Court explained that the exclusion’s purpose is to prevent claims for improper renovation work, not collateral damage caused during renovations. Since the subcontractor was not renovating the windows, the damage was the type of collateral damage the policy was meant to cover. The Court further noted that Liberty Mutual’s interpretation of the exclusion was unreasonable; ruling in the insurer’s favor would require a “high degree of certainty that the policy language clearly and unambiguously excluded the claim,” and, having no such certainty, the Court declined to apply the exclusion.
The Court’s interpretation of the faulty workmanship exclusion is highly favorable to policyholders. With this decision, the Court confirms that exclusions should be interpreted narrowly and affirms that it is an insurer’s duty to prove that exclusions unambiguously apply. Liberty Mutual is appealing the Court’s decision.