By Jeff Sistrunk
Law360 (January 14, 2020, 7:15 PM EST) -- Main Street America Assurance Co. urged the Connecticut Supreme Court on Tuesday to rule that a pair of common exclusions in a policy it issued to a general contractor bar coverage for a judgment stemming from the collapse of a home during renovations, in a case of first impression under the state's law.
Main Street's attorney, Scott T. Ober of Hassett & Donnelly PC, told the Connecticut justices during a hearing in Hartford that two "business risk" exclusions absolve the insurer of liability for a $558,000 judgment entered against its policyholder, general contractor New Beginnings Residential Renovations LLC, in the underlying suit over the collapse of a rental home. The home fell down after a New Beginnings subcontractor temporarily lifted it off its foundation.
The case marks the first time a Connecticut appellate court has been called upon to interpret the business risk exclusions, which generally preclude coverage for any damage to "that particular part" of a property on which the policyholder or its subcontractors were working. Some state and federal courts interpreting identical or similar exclusions have narrowly construed that three-word phrase to refer to a specific piece of a property, while others have broadly interpreted it to encompass an entire construction project.
Ober argued that, under these circumstances, "that particular part" refers to the entire rental home, foreclosing coverage for the judgment against New Beginnings. But Justice Steven D. Ecker questioned whether such a broad interpretation would defy the reasonable expectations of the policyholder.
"If you are going to make an exclusion for something like this, I would think it would have a neon sign on it," Justice Ecker said. "My guess is, if we talked to the individual who bought this policy, they would say, 'are you joking me?' Because I'm sure no one told them."
Ober replied that a general liability policy like the one Main Street sold to New Beginnings is not intended to cover costs associated with a policyholder's failure to properly perform the work for which it was paid.
"When a contractor is hired to do work, their pricing as a matter of course should reflect the actions needed to complete that work in a proper manner," he said. "If a contractor is hired to raise a house and says, 'I will do it cheap and won't do anything a contractor is required to do,' and the house tips over, that is not what a liability policy is supposed to cover."
The origins of the case date back to 2013, when the owner of the Milford, Connecticut, rental home, Nash Street LLC, enlisted New Beginnings to perform extensive renovations on the dwelling after it was damaged in consecutive years by Hurricane Irene and Superstorm Sandy, according to court documents. In November 2013, the home collapsed after a subcontractor called FLP Construction lifted the building off its foundation and placed it on a temporary wooden support structure known as "cribbing," filings said.
The home was declared a total loss, and Nash proceeded to sue New Beginnings over the incident in Connecticut state court. Main Street declined to defend or indemnify the general contractor, which was ultimately hit with a $558,000 judgment in October 2016.
Nash then initiated the current suit against the insurance company, alleging it had wrongfully refused New Beginnings' coverage request. In December 2018, a Connecticut judge granted Main Street's motion for summary judgment, finding that the business risk exclusions barred coverage for all of Nash's claims. A state appellate court transferred Nash's appeal straight to the Connecticut Supreme Court.
During Tuesday's hearing, Nash's counsel, David G. Jordan of Saxe Doernberger & Vita PC, contended that the two exclusions shouldn't preclude coverage for the loss of the whole home because New Beginnings' subcontractor was only working on the cribbing and related components at the time of the collapse.
"Isn't it at least arguable they had something to do with the entire house, since they were lifting the entire structure?" Chief Justice Richard A. Robinson queried.
"You could say it was a perilous moment in the construction phase, in the sense that the risk of damage to the total house was at play because of what they were doing," Jordan replied. "But I don't believe that renders all the other work going on in the house part of the work that was occurring when it was lifted, particularly that done by FLP."
Jordan said that, given that out-of-state courts have split on the correct interpretation of the business risk exclusions, the exclusionary language is ambiguous. At a minimum, Main Street should have initially agreed to defend New Beginnings while reserving its rights to later challenge its coverage obligations in court, he argued.
Responding to a question from Justice Maria Araujo Kahn, Jordan later asserted that, because Main Street refused to defend the general contractor outright, it should still have to cover the $558,000 judgment even if the state justices choose to adopt the insurer's broader reading of the business risk exclusions.
However, Main Street's attorney, Ober, countered that the lack of controlling Connecticut appellate precedent on the proper interpretation of the business risk exclusions and the split among out-of-state courts on the subject don't render the exclusionary language ambiguous.
"The clear language applies to preclude coverage here," Ober said. "It is not an ambiguous situation that would warrant a reservation of rights."
Nash is represented by David G. Jordan and Samantha M. Oliveira of Saxe Doernberger & Vita PC.
Main Street is represented by Scott T. Ober and Colleen M. Garlick of Hassett & Donnelly PC.
The case is Nash Street LLC v. Main Street America Assurance Co., case number 20389, in the Connecticut Supreme Court.
--Editing by Jack Karp.
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