Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Q:  When is a claim for damage to property not "property damage"?

A.  When it doesn't involve physical injury to or loss of use of tangible property?

So says the Vermont Supreme Court in a recent coverage dispute arising out of a building contractor's failure to use cedar shingles of the right color and quality in the construction of the plaintiff's home.  The court ruled in Down Under Masonry, Inc. v. Peerless Insurance Company that the contractor's liability insurer had no duty to defend inasmuch as the use of white cedar shingles instead of red cedar shingles as contracted for (as all fans of shingles know, red cedar is much the superior product) had not caused any physical injury to the plaintiff's home or caused him to lose the use of it.  The court concluded that it would not "find coverage for aesthetic damage under a CGL policy that does not explicitly provide for it."

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The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

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The Fifth Circuit has ruled in Nationwide Mutual Ins. Co. v. Lake Caroline, Inc., No. 06-61084 (5th Cir. January 23, 2008) that a Mississippi district court was correct in holding that the defendant’s CGL policy did not afford coverage for a “slander of title” claim by reason of the “expected or intended” conduct and the “knowledge of falsity” exclusions under Coverage B.

The Fifth Circuit ruled, however, that the district court erred in applying the “knowledge of falsity” exclusion in view of the fact that the allegation of malice in the underlying case did not require knowledge of falsity as a party can be deemed to have acted with malice under Mississippi law upon a showing of reckless disregard for the truth.

Further, the Fifth Circuit held that ht underlying claims failed to trigger Coverage A as, even if such claims satisfy the requirement of an “occurrence” (which the court doubted), there was no claim for property damage since the golf development had not been physically injured nor did pure economic losses satisfy the policy’s requirement that there be “loss of use” of tangible property.

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The total pollution exclusion was held to apply to property damage resulting from the release of home heating oil in Nascimento v. Preferred Mut. Ins. Co., (1st Cir. (Mass.) Jan. 18, 2008). The claim arose from soil contamination to an adjacent property from an UST used by the insured to store home heating oil to heat his business. The insured was sued by subsequent property owners for costs incurred in remediating the property, and for property damages. The insured conceded that section (f)(2)(a) of the exclusion barred coverage for remediation damages; however, he argued that the underlying complaint also sought damages to the property apart from the cost of remediation to which the exclusion do  not apply. The court disagreed, holding that section (f)(1)(a) of the exclusion, which bars coverage for “ ‘property damage’ arising out of the actual ... discharge, dispersal, seepage, migration, release or escape of pollutants ... at or from any premises, site, or location ... which is or was at any time ... occupied by ... any insured,” also applied to the claim. Though the insured did not own the adjacent lot, he did "occupy" the UST within the meaning of (f)(1)(a). Relying on McGregor v. Allamerica Ins.Co., 449 Mass. 400 (2007), decided after the district court's opinion and while this appeal was pending, the court held that once the oil becomes a pollutant, the total pollution exclusion of the CGL policy is triggered and coverage for remediation and non-remediation claims is barred.

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