Court says $2 Million in “remediation costs” not covered under CGL policy

January 14, 2013

Insurance LawA recent Florida case examines the scope of a Commercial General Liability (CGL) insurance policy and when the Duty to Defend is invoked.

National Trust Insurance Company issued a CGL Policy to Graham Brothers Construction Company.  Graham allegedly buried organic matter, including roots, during the course of a residential development project.  The work was done pursuant to a contract with the owner obtained by Grahams’ “affiliate company,” Specialized Services, and the owner focused first on Specialized Services although Graham “performed much of the actual work” and Kris Graham, an employee of Graham, “served as field superintendent on the project.”  The owner demanded that Specialized Services remediate the defective lots after the defect — the buried organic matter — was discovered during excavation for a swimming pool on one of the lots.  National Trust Ins. Co. v. Graham Bros. Constr. Co.

When the remediation was done, the owner sued Specialized Services for the costs of remediation.  The owner recovered a Judgment of $1,956,355.37 against Specialized Services.  The owner then sued Graham, which filed for Bankruptcy, and National Trust filed for Declaratory Judgment.

The owner’s allegations were simply was not covered by the CGL National Trust issued to Graham in the eyes of the Federal Court.  The Court held that underFloridalaw, there was no allegation of covered “Property Damage.”  Therefore, there was no Duty to Defend under Florida law.  Since there was no Duty to Defend, which is broader than the separate duty to Indemnify covered damages, there was no Coverage for the Judgment at all under the CGL:

It is well-settled under Florida law that when damages in an underlying claim include only the costs associated with the repair, removal, and/or replacement of defective work without any allegations of physical injury to “some other tangible property,” there is no “property damage” under the Policy, and therefore no coverage.

CGL Coverage particularly for “Property Damage” is ordinarily determined by investigating the facts.  Improper soil compaction and fill is a fairly common cause of physical injury to tangible property, i.e., a frequent cause of covered “Property Damage”.  Here, however, the allegations in the underlying complaint left no room for doubt.  In the eyes of the Court, there is no Coverage at all underFloridalaw here.