Expert Commentary

No CGL Coverage for Chimney Repairs Due to Carbon Monoxide Leakage

A court held that there was no "occurrence" as defined by the commercial general liability (CGL) policy when repairs had to be made to chimneys in new houses due to leaking flue gasses and carbon monoxide.


Environmental
January 2011

Soon after the houses were completed and sold, the developer began receiving complaints from homeowners about the chimneys, and the homeowners filed suit. In response to the suit, the developer demanded that its CGL insurer provide it with defense and indemnification. The insurer agreed to provide a defense, but with a reservation of rights. The developer also demanded indemnity under the contractor's CGL policy that had named the developer as an additional insured.

The developer paid to have the defective chimneys repaired. The homeowner suits were then settled or withdrawn. While this was taking place, the developer's insurance company filed a declaratory judgment action against the developer and against the contractor's insurer, asking the court to declare that coverage was not triggered under the policy for the allegations contained in the lawsuits. Both insurers filed motions for summary judgment. In opposing the insurers' summary judgment motions, the developer argued that the leaking carbon monoxide which seeped into the homes as a result of the faulty chimneys resulted in property damage and constituted "occurrences" under the insurance policies.

The insurers argued that the carbon monoxide caused no physical damage, and that the claims were essentially for faulty workmanship, which they contend was not covered by the policies. The trial court granted the insurers motions for summary judgment. This was affirmed on appeal in the case of Concord Gen. Mut. Ins. v. Green & Co. Bldg. & Dev. Corp., 2010 WL 3618713 (N.H., 2010).

The developer's CGL policy, as well as that of the contractor, contained identical relevant language. Both policies provided coverage for "bodily injury" and "property damage" only if "[t]he 'bodily injury' or 'property damage' is caused by an 'occurrence....'" The policies defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Under both policies, "property damage" was defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

The court explained that defective work, standing alone, did not constitute an "occurrence" under the insurance policies. This, said the court, is because "the fortuity implied by reference to accident or exposure is not what is commonly meant by a failure of workmanship." The court further explained that, in this case, to constitute an occurrence under the insurance policies, the developer must have suffered damage to property other than the work product (chimneys).

Although the developer argued that the entry of carbon monoxide into the homes was itself physical injury to tangible property, the court concluded otherwise, stating:

In this case, however, the carbon monoxide and other gases caused no physical, tangible alteration to any property. The homeowners did not suffer the loss of use of any property other than their chimneys. Green concedes that the homeowners continued to occupy their homes and to use their furnaces throughout the heating season. None of the homeowners suffered bodily injury due to the gases, and the homeowners were not required to vacate their homes while the chimneys were being repaired. The only effect caused by the faulty chimneys was their loss of use. The loss of use of the insured's work product, standing alone, is not sufficient to constitute an "occurrence" under the policy.

The repairs to the chimneys were limited to correcting the faulty workmanship and were preventative in nature—made for the purpose of stopping carbon monoxide leaks before they caused any actual bodily injury or property damage. The developer argued that it would be absurd to require someone to become physically injured by the leaking gases before coverage under the policies would be triggered. In this regard, the developer essentially argued that anticipatory bodily injury was sufficient to trigger coverage under the policy. This seems to be the only reference to bodily injury rather property damage. But that argument, per the court, misconstrued entitlement to insurance coverage because the insurers were "free to limit their liability through clear and unambiguous policy language," and they did so in this case.

Conclusion

This decision is consistent with others around the country that address faulty workmanship which results only in the need for repairs to the defective work itself but does not cause physical injury to any other property at the site and does not cause any bodily injury. Perhaps because of the strength of that argument in favor of the insurers, there was no need to argue that the pollution exclusion of the CGL policy might also potentially apply to bar coverage. The main argument for coverage by the developer was that bodily injury could occur to homeowners if the chimneys were not repaired. Such bodily injury would have been caused by the carbon monoxide. Carbon monoxide could be considered a "pollutant" and, therefore, bodily injury resulting from the carbon monoxide might be excluded from coverage pursuant to the pollution exclusion.


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