Continental Cas. Co. v. Gilbane Bldg. Co.

• Decision Date: 13 February 1984
• Citation: 461 N.E.2d 209,391 Mass. 143
• Parties: CONTINENTAL CASUALTY COMPANY v. GILBANE BUILDING COMPANY et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 209

461 N.E.2d 209

391 Mass. 143

CONTINENTAL CASUALTY COMPANY v. GILBANE BUILDING COMPANY et al. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Oct. 6, 1983.

Decided Feb. 13, 1984.

Thomas D. Burns, Boston (Charles Mark Furcolo and Steven H. Goldberg, Boston, with him) for plaintiff.

Anthony M. Feeherry, Boston (Ceris H. Lim Epstein, Boston, with him) for H.H. Robertson Co.

Francis J. Sally, Boston, for Gilbane Building Co.

Before HENNESSEY, C.J., and LIACOS, ABRAMS, NOLAN and LYNCH, JJ.

ABRAMS, Justice.

Continental Casualty Company (Continental) brought an action for a declaratory judgment against Gilbane Building Company (Gilbane) and H.H. Robertson Company (Robertson) to determine whether Continental had a duty to defend Gilbane and Robertson in actions brought by John Hancock Mutual Life Insurance Company (Hancock) and Mamma Leone's of Boston, Inc. (Mamma Leone), claiming damages from Gilbane and Robertson for the faulty design ² of the John Hancock Tower (Tower). A judge of the Superior Court, on Continental's motion for a judgment on the pleadings or, in the alternative, for summary judgment, and on Robertson's cross-motion for summary judgment, ruled against Continental and declared that Continental had a duty to defend Gilbane in the Mamma Leone action and Robertson in both actions. Continental appealed the judge's order for summary judgment and renewed its notice of appeal after judgment was entered in the Superior Court as to Robertson. ³ We granted Continental's application for direct appellate review. We affirm.

We summarize the facts. ⁴ In 1968, Hancock purchased two insurance policies from Continental pursuant to specifications outlined in the construction contract for the Tower. The comprehensive general liability policy provided personal injury and property damage coverage for, among others, Hancock, the owner, Gilbane, the general contractor, and Robertson, the curtain wall subcontractor. At Hancock's insistence, the printed policy was amended to read: "The insurance afforded applies separately to each insured against whom claim is made or suit is brought." ⁵

In 1975, Hancock sued Gilbane, Robertson, and others associated with the design and construction of the Tower curtain wall. In relevant part, the action alleged that in 1972 significant numbers of glass panels failed in the Tower's curtain wall. As a consequence, the Tower was not weathertight "and could not withstand the forces and conditions to which it was subjected." Hancock further alleged that the problem was the result of negligent design and construction by Gilbane and Robertson, and that Hancock sustained substantial damages, including "the deprivation of the use of the Tower, diminution in value of the Tower, and lost income on rentals for the Tower."

1. The duty to defend. ⁶ "It is settled in this jurisdiction, and generally elsewhere, that the question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions: if the allegations of the complaint are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense. See Vappi & Co., Inc. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965); Magoun v. Liberty Mut. Ins. Co., 346 Mass. 677, 681-682, 195 N.E.2d 514 (1964); Terrio v. McDonough, 16 Mass.App. 163, 166, 450 N.E.2d 190 (1983). See also 7C Appleman, Insurance Law and Practice § 4683 (rev. ed. 1979); 14 Couch, Cyclopedia of Insurance Law § 51.42 (2d ed. 1982); 1 Long, Law of Liability Insurance § 5.03 (1981); Windt, Insurance Claims and Disputes § 4.01 (1982); Annot., 50 A.L.R.2d 458 (1956). Otherwise stated, the process is one of envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy" (footnote omitted). Sterilite Corp. v. Continental Cas. Co., 17 Mass.App. 316, 318, 458 N.E.2d 338 (1983). See Terrio v. McDonough, supra, 16 Mass.App. at 169, 450 N.E.2d 190. We turn to the allegations of the underlying complaints to determine whether they are or may be envisioned to be within the provisions of the policy.

2. "Property damage" under the insurance policies. Continental argues that the loss of use of property is not covered by the policy unless there is physical injury to tangible property. The comprehensive general liability policy defines property damage as "injury to or destruction of tangible property." See, e.g., Hamilton Die Cast, Inc. v. United States Fidelity & Guar. Co., 508 F.2d 417, 419-420 (7th Cir.1975). The judge ruled that because the complaints may be read to allege "both physical injury to and loss of use of the John Hancock Tower, the claims for damages result from 'property damage' " and were within the coverage of the policy. We agree.

We read the policy as written. We are not free to revise it or change the order of the words. "There is nothing in the definition [of property damage] requiring physical injury or destruction of property. The guide to determination of coverage is the kind of property rather than the kind of injury. Tangible property rendered useless is injured and hence is covered, since the definition of damages includes 'loss of use of property resulting from property damage.' " 3 R. Long, The Law of Liability Insurance, App.B, § 6 (1981). We, like a majority of courts considering this issue, conclude that "the term property damage does not require actual physical damage but can include intangible damage such as the diminution in value of tangible property." McDowell-Wellman Eng'g Co. v. Hartford Accident & Indem. Co., 711 F.2d 521, 525-526 n. 7 (3d Cir.1983). See Sola Basic Indus., Inc. v. United States Fidelity & Guar. Co., 90 Wis.2d 641, 653-654, 280 N.W.2d 211 (1979); Pittway Corp. v. American Motorists Ins. Co., 56 Ill.App.3d 338, 342, 13 Ill.Dec. 244, 370 N.E.2d 1271 (1977), and cases cited.

(a) Hancock complaint. The Hancock complaint alleges "substantial damages, including the cost of labor and materials for removing and replacing the glass units, additional design, engineering and construction costs, increased operating expenses and other costs for the Tower, the deprivation of the use of the Tower, diminution in value of the Tower, and lost income on rentals for the Tower." The complaint also alleges that the defects were not apparent until after the wall had been "completed and been subjected to normal forces and conditions." Further, the complaint suggests that Gilbane and Robertson fraudulently lulled Hancock into a false sense of security by assuring Hancock that the curtain wall would not fail once it "was completed and sealed" in the Tower.

Continental argues that the curtain wall was not integrated into the Tower, ⁷ and therefore damages were limited to the curtain wall itself and the cost of repair and replacement. Such damages are explicitly excluded from coverage by exclusion (1) and (m). See 216 infra. As we read the Hancock complaint, we think the allegations are "reasonably susceptible of an interpretation" that Hancock suffered its damages after the curtain wall was "completed and sealed" in the Tower. The allegations of damages are not limited to repair and replacement or intangible damages. They also encompass damage to the Tower itself after installation of the curtain wall.

Since the complaint may be read as claiming damages after integration of the defective curtain wall into the Tower, the allegations are sufficient to trigger the duty to defend. "[C]ommon sense dictates there was substantial property damage to the entire ... building when the exterior walls presented a faded, discolored, mottled and unsightly appearance in contrast to a uniform and eye-pleasing manifestation envisioned by the original plans. To say the damage in such instance can be confined to the blocks as distinct from the ... building, we feel, is unrealistic and loses sight of the forest because of the trees." Dakota Block Co. v. Western Casualty & Sur. Co., 81 S.D. 213, 218, 132 N.W.2d 826 (1965). See United States Fidelity & Guar. Co. v. American Ins. Co., 169 Ind.App. 1, 345 N.E.2d 267 (1976). See also Beacon Textiles Corp. v. Employers Mut. Liab. Ins. Co., 355 Mass. 643, 646, 246 N.E.2d 671 (1969); Sturges Mfg. Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 371 N.Y.S.2d 444, 332 N.E.2d 319 (1975); Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356, 357 N.Y.S.2d 705, 314 N.E.2d 37 (1974). ⁸

(b) Mamma Leone's complaint. The judge, citing R. Long's treatise, found that Mamma Leone's complaint alleged property damage within the policy because "[t]angible property rendered useless is injured and hence is covered .... The discharge of noxious gas from the insured's plant renders a nearby business building unfit for human occupancy, the resulting loss of profits is covered." 3 R. Long, The Law of Liability Insurance, App. B, § 6, 38-39 (1981). Accord: R. Elliot, The New Comprehensive General Liability Policy 12-6 (definition of property damage "omits any requirements that there be physical injury as a prerequisite for coverage. Thus, if tangible property is not physically damaged but is made useless by an act of an insured, the policy will cover the insured's legal liability assuming no specific exclusion applies. As an example: a large piece of contractor's equipment breaks down in a public street in such a manner that the street must be closed off for a period of time and the public has limited or no access to the stores located in the block affected. Loss of use claims from the operators of those stores would be covered").

Mamma Leone's allegations also are "reasonably susceptible of an interpretation" that the falling glass caused the area surrounding...