New York Court Grants Insured’s Motion to Dismiss Construction Defect Case and Awards Fees to Insured
The New York Supreme Court granted the insured's motion to dismiss the insurer's complaint seeking relief on its duty to indemnity and awarded fees to the insured. Utica Mut. Ins. Co. v. Crystal Curtain Wall Sys. Corp., 2023 N.Y. Misc. LEXIS 22368 (N.Y. Sup. Ct. Nov. 27, 2023).
The case arose from a construction-related property damage action. Crystal entered a subcontract with the general contractor to design and install window and curtain systems in mixed residential and commercial buildings. When unit owners took possession, water infiltration during a rainstorm caused property damage and moldy conditions.
The unit owners sued asserting claims against Crystal for the cost of repair or replacement of the allegedly defective curtain wall, damage to unit owners' personal property, diminution in value of the units, and delay damages consisting of increasing interest and carrying costs.
Utica filed a declaratory judgment action seeking relief defining the parameters of its duty to indemnify Crystal in the underlying action. Utica did not dispute it had a duty to defend Crystal in the underlying action. Crystal moved to dismiss and for attorney fees incurred in defending this coverage action. Utica filed a cross-motion for a declaration that it had no duty to indemnify Crystal in connection with the costs of repair or replacement of the curtain wall.
Utica argued the policy did not insure against faulty workmanship n the work product itself, but rather faulty workmanship in the work produce which created a legal liability by causing bodily injury or property damage to something other than the work product. Because the glass curtain wall was Crystal's own work product, Utica argued, Crystal did not have coverage for the costs to repair or replace the wall. This argument begged the question: whether the damage to the curtain wall necessitating its repair or replacement stemmed from defective design or installation of the wall itself (by Crystal or its subcontractors), or instead from defective work on other components of the building carried out by other parties.
The "your product" exclusion did not necessarily oust coverage for the costs of repairing or replacing the curtain wall. The record did not yet establish whether the damage to the curtain wall "arose out of it", i.e., from defects in the wall itself – or arose instead from defects in other components of the building,
The "your work" exclusion barred cover for "'property damage' to 'your work' arising out of it or any part of it" – but not "if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor." Again, it was not yet clear how the damage to the curtain wall arose or what part of the work on the curtain wall was performed by Crystal, and what part by one or more subcontractors. Therefore, whether coverage existed for curtain-wall-related costs depended on further fact-finding. Utica's cross-motion was denied. Cyrstal's motion was granted because the action was premature.
The court also awarded fees to Crystal. Under New York law, a policyholder was entitled to attorney fees when it prevailed in the defense of an action brought by an insurer to challenge only the insurer's duty to indemnify.
