Russell Blodgett appealed a decision of the Superior Court granting summary judgment in favor of the plaintiff, the Cincinnati Specialty Underwriters Insurance Company (CSU). Blodgett claimed that the trial court erred in concluding that the terms of a commercial general liability policy issued by the CSU clearly and unequivocally excluded coverage of Blodgett’s damages in a separate personal injury action against CSU’s insured as a result of Blodgett’s case of alleged alleged negligence.
IN Cincinnati Specialty Underwriters Insurance Company v. Best Way Homes, Inc.No. 2021-0280, Supreme Court of New Hampshire (April 27, 2022), the Supreme Court read the entire policy and resolved the issues raised by the parties.
CSU’s insured, corresponding to Best Way Homes, Inc. (Best Way), is a turnkey contractor. In May 2012, Best Way entered into an agreement with a homeowner to carry out renovations to his home (the property). The project included building a deck with an attached staircase. According to a verbal agreement, Best Way outsourced the construction of the deck and stairs to Bob Wood Construction, which completed the project in 2012.
In 2017, the homeowner hired Blodgett to perform plumbing services on the property. Blodgett was injured when the stairs separated from the deck as he went down it, causing him to fall about ten feet and be injured. Blodgett sued the homeowner for negligence and Best Way for negligent failure to inspect, warn and remove hazards, as well as a separate claim against Best Way for negligent letting and monitoring. At the time of the injury, Best Way was named insured under the CSU insurance, which was valid from June 29, 2016 to June 29, 2017. The CSU insurance covered bodily injuries caused by an “event” that occurred during the insurance period. The policy also contained an exclusionary provision that included:
Section IV – Commercial General Liability Terms amended to include the following languages:
As a condition of and for coverage of this policy, you must do all of the following:
- Obtain a formal written contract with all independent contractors and subcontractors in force at the time of the damage or the damage that verifies valid commercial general liability insurance written on an “occurrence” basis …
This insurance does not cover any loss, claim or “target” for any liability or damage arising from operations or completed operations performed on you by independent contractors or subcontractors unless all of the above conditions are met. (my italics)
The CSU sued for declaratory judgment and requested a declaration that it had no obligation or obligation to defend or indemnify Best Way with respect to Blodgett’s negligence claim. CSU also requested a summary judgment, claiming that Best Way did not receive a formal written agreement from the subcontractor and thus did not meet the conditions for coverage set out in the exemption provision. The CSU argued that the claims against Best Way, by law, were excluded from coverage by the unambiguous terms of that exclusion clause. The district court upheld CSU’s request for a summary judgment.
Blodgett does not deny that Best Way failed to meet the coverage requirements set out in the policy exemption. However, Blodgett argued that the exclusion clause does not preclude coverage in this case. Blodgett argued that, based on the simple meaning of its terms, the exclusion clause does not apply to negligent acts that occurred before the date the insurance came into force. He therefore claims that, since the subcontractor built the stairs in 2012 – about four years before the insurance came into force – the exemption provision does not apply in this case.
An event insurance, such as the one issued by the CSU, covers all claims based on an event that occurred during the insurance period. Here it is undisputed that the CSU policy is an event policy, which included “bodily injury” or “property damage” that “occurs[red] during the insurance period. “
IN Cincinnati Specialty U / W Ins. v. Milionis Const.352 F.Supp.3d 1049, 1055 & n.5 (ED Wash. 2018) USDC, interpreted an identical exclusionary provision and concluded that it required the insured to meet “three express, unambiguous conditions” and noted that the provision was ” only subject to a reasonable interpretation ”and therefore enforced the exclusion.
The Supreme Court interpreted the current language of the exemption provision as meaning that it did not imply “no time reference” and that it simply meant that the CSU must have met the conditions for coverage in order for coverage to apply to the claim. The fact that the precedent terms use the present does not mean that the exemption provision is limited to damages as a result of the subcontractor’s work performed during the insurance’s coverage period. Rather, it only states that the insured must meet the precedent conditions at the time when it seeks coverage in order for the insurance to cover the damages. Therefore, when considered in an appropriate context, no reasonable person in the position of the insured could have interpreted the precedent conditions of the exemption provision as a temporal reference.
In addition, other languages in the exemption provision that is not included in the precedent conditions – written in the preterite – the provision applies to negligent acts committed before the insurance began. Specifically, the exclusive provision states that CSU’s policy will not apply “to any loss, claim or” target “for any liability or damage arising out of business or completed operations performed for you by independent contractors or subcontractors unless all conditions have been met. ” (My italics added.)
Consequently, the Supreme Court concluded that the exclusive provision was unequivocally applied whenever Best Way seeks coverage under the CSU policy, regardless of whether the acts or omissions that caused the damages occurred prior to the effective date of the insurance.
As the district court noted, the Supreme Court has consistently interpreted the term “arises from” in the broad sense to mean “derives from or grows from or derives from.” Merrimack School Dist. v. Nat’l School Bus Serv.140 NH 9, 13 (1995) (citation omitted). In the end, the damage that Blodgett claimed – his physical damage – arose from the subcontractor’s alleged negligent construction of the stairs that led to its collapse. As the district court found, there would be no claims against Best Way except for the subcontractor’s alleged negligence. The claims against Best Way – including those based on its subsequent omissions after the construction of the stairs – stem from the subcontractor’s alleged negligence and establish a causal link between the subcontractor’s work and Blodgett’s claims against Best Way. Therefore, all claims against Best Way have arisen from the subcontractor’s work and the exempt provision excludes coverage in the underlying dispute.
Liability insurance is a risk-spreading device. To limit the premiums charged, insurers issuing CGL insurance transfer the risk they take by requiring an insured contractor to require each subcontractor to have insurance that protects the insured contractor. The subcontractor was not insured and did not protect the risk and as a result, the insured contractor violated a material condition of the insurance and had no insurance for defense or compensation.
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Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
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