New York Law Review

Tag: construction defects

  • George J. Igel & Co. v. United States Fidelity & Guaranty Co., 81 N.Y.2d 1033 (1993): Scope of the “Work Product” Exclusion in Liability Insurance

    George J. Igel & Co. v. United States Fidelity & Guaranty Co., 81 N.Y.2d 1033 (1993)

    A “work product” exclusion in a comprehensive liability insurance policy bars coverage for claims arising from defects in the insured’s completed work, including discretionary choices made during the course of that work.

    Summary

    George J. Igel & Co., a residential land developer, was sued by homeowners alleging the developer failed to provide a safe water supply. The homes, not connected to a public system, relied on wells contaminated with various substances. Igel sought defense and indemnification from its insurer, United States Fidelity & Guaranty Co. The insurer disclaimed coverage based on a “work product” exclusion in the policy. The New York Court of Appeals held that the exclusion applied, as the choice of the site and its water supply access was part of the developer’s work product. Therefore, the insurer was not obligated to defend or indemnify the developer.

    Facts

    George J. Igel & Co. developed a residential area in the Town of New Scotland, Orchard Park, consisting of 35 homes.

    The 30 homeowners sued the developer, claiming that their homes were not built in a workmanlike manner because they lacked a safe water supply.

    The homes relied on ground water wells contaminated with iron, iron bacteria, sodium, chloride, and methane gas, which allegedly damaged household fixtures, appliances, and posed a health hazard.

    Procedural History

    The developer sought defense and indemnification from its comprehensive liability insurer, United States Fidelity & Guaranty Co.

    The insurer disclaimed coverage based on a “work product” exclusion in the policy.

    The Appellate Division upheld the insurer’s decision.

    The New York Court of Appeals affirmed the Appellate Division’s order, concluding that the exclusion applied.

    Issue(s)

    Whether the “work product” exclusion in the developer’s comprehensive liability insurance policy bars coverage for claims arising from the developer’s choice of a site dependent on a contaminated water supply.

    Holding

    Yes, because the choice of site, including considerations of its water supply, is part of the developer’s work product, and the insurance policy excludes liability arising from defects in that work product.

    Court’s Reasoning

    The court reasoned that the “work product” exclusion exists to exclude coverage for business risks, including claims that the insured’s product or completed work was not what the damaged person bargained for. The court cited Henderson, Insurance Protection for Products Liability and Completed Operations — What Every Lawyer Should Know, 50 Neb L Rev 415, 441. The court determined that the “work product” of a residential land developer includes the numerous discretionary choices that must be made during construction, including site choice and access to a water supply. The court stated, “The builder’s site choice, a choice that necessarily includes consideration of its access to a water supply, is clearly part of that work product.” The court referenced Gene & Harvey Bldrs. v Pennsylvania Mfrs. Assn. Ins. Co., 512 Pa 420, 427, 517 A2d 910, 913-914 and Garneau v Curtis & Bedell, 158 Vt 363, 368, 610 A2d 132, 134 to support their claim. Because the homeowners’ claims arose from the developer’s choice of a site dependent on a contaminated water supply, the court held that the “work product” exclusion applied, and the insurer was not obligated to defend or indemnify the developer.

  • John W. Cowper Co. v. Buffalo Hotel Dev. Venture, 99 A.D.2d 1019 (1984): Contractor Liability and Architect’s Role in Construction Defects

    John W. Cowper Co. v. Buffalo Hotel Dev. Venture, 99 A.D.2d 1019 (1984)

    A contractor’s liability for construction defects hinges on whether the defects stem from their workmanship or materials, and an architect’s inspection failures do not relieve the contractor of responsibility for defects caused by improper workmanship, although they may affect the damages assessed.

    Summary

    This case addresses a dispute over construction defects at the Buffalo Hilton Hotel, focusing on the allocation of responsibility between the general contractor (Cowper) and the hotel owners (Buffalo Hotel Dev. Venture). The owners alleged the trial court erred by charging the jury regarding the architect’s inspection duties and the concrete mix design responsibility. The court affirmed the lower court’s judgment, reasoning that the jury’s finding that the defects weren’t due to the contractor’s workmanship rendered the alleged errors harmless. The court emphasized that while the architect’s failure to inspect properly doesn’t relieve the contractor’s primary duty for workmanship, it can impact damages. The court also rejected the owner’s argument regarding final payment conditions.

    Facts

    The John W. Cowper Co. was the general contractor for the construction of the Buffalo Hilton Hotel. Construction defects arose, leading to a dispute between Cowper and the hotel owners, Buffalo Hotel Dev. Venture. The dispute centered on responsibility for the defects, particularly concerning the concrete in the hotel garage. The owners argued that the architect, as their agent, bore responsibility for design flaws, while Cowper was responsible for materials and workmanship. The structural engineer modified the concrete mix design during construction. The contract included a condition (General Condition 9.9.2) requiring full payment to subcontractors before the contractor received final payment.

    Procedural History

    The case was tried in the Supreme Court, Erie County. The owners appealed to the Appellate Division, Fourth Department, challenging the trial court’s jury instructions and rulings on responsibility for the concrete mix design. The Court of Appeals affirmed the Appellate Division’s order and the judgment of the Supreme Court.

    Issue(s)

    1. Whether the trial court erred in instructing the jury regarding the architect’s inspection duties under the Buffalo Building Code and reading those provisions during deliberations.

    2. Whether the trial court erred in ruling that the architect and structural engineer were solely responsible for the design of the concrete mix used in the hotel garage.

    3. Whether General Condition 9.9.2 of the contract, requiring full payment to subcontractors before final payment to the contractor, was satisfied.

    Holding

    1. No, because the jury found the construction defects were not due to the contractor’s workmanship or materials, rendering any error in the jury instructions harmless.

    2. No, because even if the ruling was erroneous, the jury’s finding that the defects didn’t result from poor materials or workmanship meant the ruling didn’t contribute to the verdict.

    3. No, because this action encompasses claims for various progress payments which plaintiff contends defendants never paid. Therefore, the condition precedent does not apply in this case.

    Court’s Reasoning

    The court reasoned that the jury’s negative answer to the interrogatory regarding improper workmanship or materials was crucial. The charge required the jury to first determine if the defects stemmed from the contractor’s poor workmanship. Only if the jury found poor workmanship could it then consider reducing damages based on the architect’s inspection failures. As the jury found no poor workmanship, the alleged errors regarding the architect’s duties were inconsequential. The court explicitly stated: “The failure of the architect or his agent to properly inspect does not relieve the contractor from any responsibility for defects caused by the improper workmanship of either the contractor or its subcontractors. However, in determining the damages which may flow from such a defect, you may consider whether any failure of the architect or agent to properly inspect contributed to or added to the damages and exclude such addition or contribution from damages for which you hold the contractor liable.” Regarding the concrete mix design, the court found that the owners were not precluded from presenting evidence of inferior materials or workmanship, and the jury’s finding of no fault on the part of the contractor rendered the ruling harmless. The court also determined that the claim encompassed progress payments, rendering General Condition 9.9.2 inapplicable. The court emphasized that its analysis shouldn’t undermine the standard interpretation of AIA contracts.