On April 4, 2019, the Massachusetts Appeals Court issued a rescript reversing and remanding a Superior Court summary judgment in favor of All America Insurance Company, a subsidiary of the Central Insurance Companies (“All America”). The March 19, 2019 decision, All America Insurance Company vs. Lampasona Concrete Corporation et al. (“Lampasona”) vacated a summary judgment for All America finding the “Your Work” exclusion in a comprehensive general liability policy (“CGL”) All America had issued to Lampasona on a construction project barred coverage for a damage claim by project’s owner.
The perennial dispute over the CGL not being a “repair” policy
A frequently litigated issue in the commercial general liability policy is the extent and limits of the coverage for contractors under the definition of “Your Work” and related exclusions. Under Massachusetts law, defective workmanship alone is not considered an accident and, therefore, not “property damage” as the result of an “occurrence” within the standard CGL definition.
The All America decision shows the fine distinctions that make the difference between a covered and uncovered claim by a contractor for property damage liability coverage arising out of their job site work.
A new hospital’s concrete floor installation leads to insurance coverage suit
The Lampasona decision arose out of the building of the Beverly Hospital in Danvers, a 90,000 square foot medical facility that cost $30 million to complete. The project owner was Beverly Hospital’s then-parent corporation, Northeast Hospital Corporation (“Northeast”), now affiliated with Lahey Clinic. Northeast’s project had an owner’s representative, an architect, a general contractor, and various subcontractors as part of the construction team.
As part of the construction project, the subcontractors had to install a flooring system for the first floor. This system consisted of a plastic vapor barrier on which sat a concrete slab. The finished first floor of the hospital included had adhesive materials attaching flooring tile in certain areas and carpet in other areas, installed on top of the concrete slab.
After completion of the hospital, Northeast complained to the general contractor that first-floor tiles had become loose and were ‘tenting’ and ‘blistering’ requiring repairs. Also, Northeast complaint that the liquid adhesive applied to the concrete slab was leaking from underneath the flooring and accumulating as liquids on the surface of the flooring.
Northeast claimed that excessive moisture migrating through the concrete slab caused this damage to the first-floor flooring materials and the subfloor.
Northeast claimed that the general contractors and the subcontractors involved in constructing the first floor had failed to use and follow appropriate materials, methods, and practices to take into account moisture level concerns when installing the first-floor flooring at the hospital.
After receiving no adequate satisfaction for its claim regarding the defects in the new hospital’s flooring system, Northeast filed a lawsuit against all the parties involved in the construction project including its owner’s representative, the architect, the general contractor and a flooring contractor.
All America reserves its rights and files a coverage suit against Lampasona
In response to Northeast’s suit, the general contractor filed third-party complaints against the subcontractors involved in installing the flooring system including Lampasona.
The general contractor had hired Lampasona Concrete Corporation (“Lampasona”) as its concrete subcontractor. Lampasona’s scope of work for the hospital project included the construction of the concrete slab and footings for Northeast’s new hospital building.
While Lampasona provided and installed the concrete slab, another subcontractor installed the vapor barrier, and multiple other subcontractors installed the first-floor flooring system on top of Lampasona’s concrete slab.
In their amended claims, Northeast and the general contractor alleged that Lampasona caused the conditions that led to the damage to the first-floor flooring system by:
(1) Puncturing the vapor barrier in numerous locations during its operations to install the concrete slab, which allowed vapor to pass through the sand layer and into the concrete slab;
(2) Improperly mixing fiber reinforcement into the concrete, which contributed to moisture and salts wicking to the concrete surface; and
(3) Improperly curing the concrete, including by hard troweling the concrete. Northeast has repaired certain areas of the first floor.
As a result, Northeast claimed it had had to remove the existing floor tiles and adhesives, burn off certain microfiber straws in the top of the concrete, and roll on a moisture mitigation system at great cost.
Lampasona, which had a series of CGL policies with All America covering the 2006 to 2007 construction period of the Beverly Hospital’s construction, reported the third-party suit to All America requesting coverage.
In response to the Northeast suit, All America issued Lampasona a reservation of rights and provided Lampasona a legal defense to the general contractors and Northeast’s claims. However, almost immediately, All America also filed a declaratory judgment against Lampasona, the general contractor and Northeast, seeking a court ruling that Lampasona’ CGL policy provided no coverage for Northeast’s claim.
Superior Court finds no covered occurrence because of “Your Work” exclusion
In its declaratory judgment action, All America conducted no discovery but instead moved for summary judgment based on Northeast’s allegations in its Second Amended Complaint against the general contractor and the general contractor’s third-party complaint against Lampasona.
Lampasona, which by then was no longer an operating entity had defaulted. However, the general contractor and Northeast filed oppositions.
Under the CGL policy issued to Lampasona, All America had agreed to pay all “sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies.” For the insurance to apply, the property damage had to be caused by an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
While All America had several arguments relating to exclusions, the Superior Court focused on the definition of “Occurrence” and the policy exclusion stating the insurance does not apply to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘Your Work’ was incorrectly performed on it.”
The term “Your Work” as used in this exclusion, the policy defined as “work … performed by [Lampasona] or on [Lampasona’s] behalf.” Also, this exclusion had an exception that made the exclusion inapplicable to property damage “occurring away from premises you own or rent and arising out of . . . ‘your work'” if the work has been completed or abandoned.
The Superior Court found, based on the policy, that All America had no duty to defend or indemnify Lampasona with respect to the Northeast claims.
The Superior Court focused exclusively on the incorrect work exclusion that the judge found dispositive, because, in the judge’s opinion, Lampasona’s work applied to the entire flooring structure because it was an “integral and inseparable part” of the construction of the flooring surface. Although the flooring surface consisted of several different layers, together they constituted “one completed product: Interior flooring for the first floor” of the hospital. The judge concluded that “[b]ecause it is alleged that Lampasona’s work was incorrectly performed on the vapor barrier, the policy excludes damage to property that must be restored, repaired or replaced because Lampasona allegedly pierced the vapor barrier.”
Appeals Court finds “Your Work” exclusion does not apply
The Appeals Court’ judges started their analysis with the general rule and its exception that:
- A commercial general liability policy does not provide coverage for faulty workmanship that damages only the [insured’s] work product; the policy does provide coverage;
- But if the faulty workmanship causes property damage to something other than the insured’s work product there is coverage.
Her the appellate judges found the Superior Court judge did not properly differentiate between Lampasona’s work and the work of the other subcontractors.
The Court noted that there was no dispute that Lampasona had not installed the vapor barrier under the concrete slab that it had installed. Also, there was no dispute the Lampasona had not done any work to install the floor tiles or carpeting put on top of the concrete slab. Other subcontractors had done all that work.
The Court also did not say the Superior Court judge was wrong in concluding that the vapor barrier, concrete slab, and floor tiles or carpeting fairly could be characterized as layers of an integrated flooring system. However, the Appeals Court did depart from the judge’s reasoning that because the separate parts made up one system, the exclusion applied. Instead, the Appeals Court ruled that “Where Lampasona was hired to install one layer of the flooring system but caused discrete damage to the other layers, that damage falls outside the…exclusion.”
The appellate judges also addressed additional arguments the Superior Court judge had not addressed on All America’s motion for summary judgment including that there was no coverage because there had been no separate “occurrence.” (“an accident, including continuous or repeated exposure to substantially the same general harmful conditions”).
The Court disposed of this argument stating:
All America’s contention that there was no “occurrence” fails for the same reasons discussed above with respect to the …exclusion. The claim here is not simply that Lampasona’s work was substandard and needs to be replaced, but that this work caused damage to particular parts of the hospital property outside of its own work. The puncturing of the vapor barrier and the migration of water through the concrete slab causing damage to the layer above it fit readily within the definition of an occurrence.
Conclusion of the Appeals Court
Based on its reasoning, the Appeals Court entered an order that “we conclude that the judge erred in ruling, as a matter of law, that All America faced no duty to defend or indemnify Lampasona for the claims that NCH has brought. We, therefore, vacate the judgment and remand for additional proceedings consistent with this opinion.”
Although All America had the right to apply for further appellate review to the Supreme Judicial Court within twenty days of the Appeals Court decision, it elected not to do so. On April 4, 2019, the formal rescript from the Appeals Court to the Superior Court entered ordering the Superior Court to reverse the summary judgment in favor of All America.