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Partner Joan Cotkin Quoted by Law360 On Insurance Case Concerning Building Damage

09/12/2017 Law360

Nossaman Partner Joan Cotkin was quoted in the Law360 article, “Calif. Ruling Fortifies Insureds In Building Damage Battles.” The article examined a California appeals court decision that rejected an insurer’s argument that two defective workmanship exclusions broadly bar coverage for any damage to a subcontractor's project. This decision bolstered policyholders locked in disputes over construction site damage by placing strict boundaries around the exclusions.

In the case, general contractor Kadena Pacific Inc. engaged a subcontractor Global Modular Inc.  to build and deliver prefabricated units as a U.S. Department of Veterans Affairs rehabilitation facility in California. Global delivered the pre-fab units late during the rainy season.  Because the units, as delivered, did not have completed roofs, and the tarps were ineffective, the interiors of the units suffered major property damage after delivery.  After settling all but the property damage claims against its subcontractor, Kadena tried the remaining property damage claims and convinced a jury that Global was liable for over $1 million  damages.  A state court later ruled that the award is covered under the subcontractor Global's commercial general liability policy with North American Capacity Insurance Co. The Insurer appealed, as did the other parties on other issues related to the first trial.

On Friday, a three-judge panel of the California Court of Appeal's Fourth Appellate District agreed with the lower court that the NAC policy covers the award, rebuffing the insurer's assertion that a pair of narrowly drafted exclusions somehow precluded coverage because they should be interpreted broadly. One of the exclusions  precluded coverage for “that particular part of real property on which you are performing operations if the property damage arise out of those operations…”  and the other precluded coverage for “that particular part of any property that must be restored, repaired…because ‘your work’ was incorrectly performed on it.” Neither applied to these facts, as the damage occurred after delivery and was caused by rain when the units were delivered during the rainy season.  Because the exclusions should be narrowly interpreted, the court applied the exclusions as written and found them inapplicable. 

Ms. Cotkin remarked, "In the standard ISO form, damage to your product is excluded broadly, but the insurer here didn't use that language." She continued, "Ordinarily, when you have modular construction like this, damage to the units would still be damage to the insured's product."

The full article can be read here.

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