The Complex Web of Insurance Coverage And Construction Losses

ScaffoldingThe Massachusetts Appeals Court recently issued a decision that sheds light on the interplay between multiple insurance policies allegedly covering the same construction project.  The project was a renovation of a second floor bathroom at a home in Medford, Massachusetts.  An employee of the plumber removed old copper piping and other debris from the bathroom and attempted to throw it in the backyard from a second floor deck.  The deck railing however was not securely in place and the plumber’s employee fell to the ground and was injured.  The employee and his wife filed suit against the homeowners and their son.  The homeowners’ son, a licensed electrician, had loosened the railing in order to push the old cast iron bathtub into the backyard and had left the railing in an upright position with the appearance that it was securely in place.

At the time of the accident, the homeowners were insureds under a homeowners’ policy.  Their son was a named insured under the same policy.  The son was also the named insured under a commercial general liability policy in connection with his business as a self-employed electrician.  Both insurance carriers were put on notice of the employee’s claim.  The homeowners’ policy assumed the defense of the parents but refused to defend their son.  The liability policy undertook defense of the son under a reservation of rights.

The liability policy filed a lawsuit seeking to have a court declare its coverage obligations.  The Appeals Court determined that both insurance companies owed a duty to defend the claim, but only the homeowners’ policy owed a duty to indemnify (or pay) the claim because there was no evidence the son was conducting his business as an electrician when the accident occurred.

The decision from the Appeals Court, Preferred Mutual Insurance Company v. Vermont Mutual Insurance Company, 87 Mass. App. Ct. 510 (2015), contains insightful analysis of issues that commonly arise in the universe of construction insurance, including the following:

  • A reminder that an insurer’s duty to defend is independent from, and broader than its duty to indemnify. An insurer has a duty to defend an insured when the allegations in a complaint are “reasonably susceptible” of an interpretation that states or roughly sketches a claim covered by the policy terms.
  • An insurer bears the burden of proving the applicability of a policy exclusion. In order for an exclusion to negate an insurer’s duty to defend, the facts alleged in the complaint must establish that the exclusion applies to all potential liability.
  • Other insurance clauses such as an “excess clause” or a “pro-rata clause” have no bearing on an insurer’s duty to defend, but rather are designed to establish a policy’s relationship with other policies in covering a loss. These provisions speak only to loss allocation among multiple insurers.

The Construction Group here at Mirick O’Connell closely follows court decisions and other laws and regulations that affect the local and regional construction industry.  If you have questions or comments regarding the Preferred Mutual decision in particular or construction insurance generally, please contact one of the members of our Group for assistance.

About David Fine

David is an partner in the firm's Litigation Group and is chair of the Construction Law Group. David serves as litigation counsel for contractors, subcontractors, suppliers and other business concerns within the construction industry. He regularly advises his clients on matters such as contract drafting and dispute resolution, surety bond claims, mechanics liens and bid protests. David works closely with a number of local and regional trade organizations, and he often lectures and writes about topics pertinent to the construction industry.
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