On October 3, 2011, the United States District Court for the Southern District of New York issued a decision construing the faulty workmanship exclusion under a Builders’ Risk policy. 1765 First Associates, LLC vs. Continental Casualty Company, 2011 U.S. Dist. Lexis 117100 (S.D.N.Y.), mot. to reconsider denied, 2011 U.S. Dist. Lexis 133042.
First Associates, LLC (“First Associates”) sought a declaratory judgment from the District Court determining that it was entitled to reimbursement for losses sustained under a Builders’ Risk insurance policy issued by Defendant, Continental Casualty Company (“Continental”).
On May 30, 2008, a tower crane collapsed at a construction site in Manhattan. Continental ultimately reimbursed First Associates for certain costs and clean up of the construction site, but refused to cover First Associates for costs caused by construction delays resulting from the crane collapse.
First Associates argued that the policy excluded losses arising from errors or defects in the subject of the construction, and not losses such as delays or clean up costs arising from equipment failure on the construction site. Continental argued that the faulty workmanship of First Associates’ subcontractors is excluded by the faulty workmanship exclusion.
The District Court held that the faulty workmanship exclusion “does not apply to losses related to accidents or equipment malfunctions during construction,” and noted that similar provisions have been interpreted to exclude only losses arising from defects in the property after construction is completed. The Court held that since the exclusion applies to losses attributable to the quality of the constructed property arising from defects in materials used by the insured or its agents, the provision does not exclude losses arising during construction from a crane collapse.
This is an example of the narrow interpretation of the Faulty Workmanship Exclusion in a claim for damage caused by the negligent acts of others on a construction site.