Laquila Const. v. Travelers Indem. Co. of Illinois, 98 Civ. 5920(HB).

• Decision Date: 23 September 1999
• Docket Number: No. 98 Civ. 5920(HB).,98 Civ. 5920(HB).
• Parties: LAQUILA CONSTRUCTION, INC. and Pinnacle Concrete Corp., Joint Venture, Plaintiff, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.
• Court: U.S. District Court — Southern District of New York

66 F.Supp.2d 543

LAQUILA CONSTRUCTION, INC. and Pinnacle Concrete Corp., Joint Venture, Plaintiff, v. TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Defendant.

No. 98 Civ. 5920(HB).

United States District Court, S.D. New York.

September 23, 1999.

Tony Berman, Berman, Paley, Goldstein & Kannry, L.L.P., New York City, for plaintiff.

Christopher S. Finazzo, Budd Larner Gross Rosenbaum Greenberg & Sade, New York City, for defendant.

MEMORANDUM & ORDER

BAER, District Judge.

The plaintiff, Laquila Construction, Inc. and Pinnacle Concrete Corp. ("Laquila"), a joint venture, commenced this suit on August 19, 1998 seeking a declaration of coverage under an insurance policy issued by the defendant, Travelers Indemnity Company of Illinois ("Travelers"). Pursuant to Rule 56 of the Federal Rules of Civil Procedure, the defendant now moves for summary judgment. For the reasons stated below, the defendant's motion is GRANTED.

I. BACKGROUND

Laquila had a contract with HRH Construction Corporation ("HRH") to provide concrete for the construction of a new building on the Upper West Side of Manhattan. The contract had particular specifications that required Laquila to use concrete having a certain minimum strength. On August 15, 1997, employees for Laquila began installing the concrete in the fifth floor structural "slab." Soon after it was discovered that the strength of the concrete was below specification, and HRH promptly issued an order directing Laquila to stop pouring the unacceptable concrete. Tests done on the concrete seven and twenty-eight days later confirmed that the concrete was indeed below specification. On October 15, 1997, further testing showed that some sections of concrete were much lower in strength than originally anticipated. Just a few days later, the City of New York issued a notice of violation that temporarily halted the entire construction site.

The defective concrete was later replaced with materials that met the requisite specifications. This replacement involved "shoring" or reinforcing the building while the corrective work on the fifth floor took place. Additionally, other subcontractors were required to remove—and later re-install—work on the fifth floor, such as heating, ventilating and air conditioning ductwork, electrical fixtures, and plumbing units.

At all relevant times to this litigation, the plaintiff was covered by a Builder's Risk insurance policy issued by Travelers. This policy insured Laquila against the risk of "physical loss or damage to the property insured, except as excluded hereunder." The "Exclusions and Limitations" on coverage were contained in Part B of the policy, which provided as follows:

THIS POLICY SHALL NOT PAY FOR:

1. PERILS EXCLUDED

(a) Any loss of use or occupancy or consequential loss of any nature howsoever caused, including penalties for non-completion or delay in completion of or delay in completion of contract or non-compliance with contract conditions;

(b) Cost of making good faulty or defective workmanship or material, but this exclusion shall not apply to physical damage resulting from such faulty or defective workmanship or material.

On October 31, 1997, Travelers received from the plaintiff notice of the loss and a request for coverage for "the costs of repairing the fifth floor slab under an approved corrective plan." (Pl.'s Mem. Opp. Summ. J. at 8.) These costs included not only removing and replacing the defective concrete slab at issue, but also the costs of "shoring the full height of the building while corrective work on the fifth floor took place" and other trade contractors' having to remove and reinstall their work. (Id.)

Travelers later denied coverage on the basis that the claim was for the "cost of making good faulty or defective workmanship or material," which was excluded by the policy. The defendant also declined coverage for any alleged consequential losses, including delays and charge-backs to the plaintiff arising from time delays. On August 19, 1998, Laquila commenced this diversity action, seeking a declaratory judgment that its claim is covered by the defendant's insurance policy.

II. DISCUSSION

Summary judgment is properly granted only when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact and the movant is entitled to summary judgment as a matter of law. Fed.R .Civ.P. 56(c). The substantive law determines what facts are material to the determination. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In assessing the record before the court, the "non-movant will have his allegations taken as true," Distasio v. Perkin Elmer Corporation, 157 F.3d 55, 61 (2d Cir.1998), but he or she may not oppose summary judgment merely by offering conclusory allegations or denials. See Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir.1997).

Although there is some disagreement as to exactly whether Laquila knew about the defective concrete at the time it was poured, this factual dispute is immaterial. Both parties concede that the concrete was defective and had to be removed. The sole remaining issue then is one of contract interpretation—whether the defendant's policy covers the plaintiff's claim. On this score, both parties agree that the exclusion clause of paragraph 1(b) of the policy is pivotal, and it reads in pertinent part that the "[c]ost of making good faulty or defective workmanship or material" is not covered by Travelers' policy. Laquila contends, however, that the second clause of 1(b), the exception to the exclusion, is applicable here and that the policy covers the claim. The exception, also known as an "ensuing loss provision," reads in pertinent part: "[T]his exclusion shall not apply to physical damage resulting from such faulty or defective workmanship or material." The plaintiff contends that "the installation of concrete that proved to be defective ... physically damaged the insured property (the structural slab and/or the building as a whole) because it was physically incorporated into the larger entity and could only be removed at a cost." (Pl.'s Mem. Opp. Summ J. at 16 (emphasis added).) I disagree.

The plaintiff argues that the policy terms are to be "taken and understood in their plain, ordinary and proper sense" and that the Court should ask "whether the average man in applying for insurance and reading the language of this policy ... would ascribe the meaning to that language which the insurance company here urges." Hartol Products Corporation v. Prudential Insurance Co. of America, 290 N.Y. 44, 47, 49-50, 47 N.E.2d 687 (1943). Finally, the plaintiff contends that the burden is on the defendant to establish that the insurer's construction "is the only construction that can fairly be placed" on the policy at issue. Id. Applying these standards to the terms of the policy in the case at bar, it becomes clear that there is indeed only one reasonable interpretation of the terms at issue here—that the plaintiff's claim falls squarely into the exclusion clause simply as a cost incurred to make good the defective concrete.

Initially, I note that the exception to an exclusion should not be read so broadly that the rule — the exclusion clause — is swallowed by the exception — here, the exception for ensuing loss. Narob Development Corp. v. Insurance Company of North America, 219 A.D.2d 454, 631 N.Y.S.2d 155-156 (1st Dep't 1995) ("Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk."), leave to appeal denied, 87 N.Y.2d 804, 640 N.Y.S.2d 877, 663 N.E.2d 919 (1995). Moreover, although not binding I find persuasive a case nearly on all fours with the case at bar. In Allianz Insurance Company v. Impero, 654 F.Supp. 16 (E.D.Wash.1986), the court considered an insured's claim for coverage under a builder's risk policy with terms nearly identical to those used in this policy.¹ There the insured had constructed a concrete wall which, when completed, contained deficiencies that required expensive repairs. The defendant sought coverage for the costs of these repairs, arguing that the defective concrete in the wall constituted "damage resulting" within the terms of the policy. On summary judgment, the court rejected the insured's "strained construction" of the exclusion and ensuing loss clauses:

The defective concrete caused...