Company Not Entitled To Coverage Under Commercial General Liability Policy For Damage Caused To Its Own Property Arising Out Of Its Own Acts

By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, L.L.C.

In JB Recycling Group, Inc. v. Landmark American Insurance Company, 2012 WL 3516490 (S.D.Fla. 2012), a recycling company (“Company”) was performing mulching work on its own real property in Florida when its mulching excavator caught fire and released fuels and other fluids onto the Company’s finished products, mulch and real property. Based on this incident, the Company submitted a claim under its commercial general liability policy to recover damages to replace its excavator, lost mulch, and costs to transport the damaged material to an appropriate dumping facility. The insurer denied coverage based on the terms and conditions of the insurance policy.

Following the insurer’s denial of the Company’s claim, the Company filed an action against the insurer for breach of contract and for declaratory judgment. The declaratory judgment action asked the Court to declare that “the fire, release of operating fluids, and damages to products and real property be declared a compensable event under the policy”. The Company did not allege in its Complaint that it had been sued by a third-party, or that it had become obligated to pay damages to a third-party as a result of the incident. Thus, the Company was seeking coverage under the policy for first-party damages, not damages resulting from the Company’s liability to a third party.

In response to the Company’s Complaint, the insurer filed a motion for summary judgment arguing that the policy does not provide coverage for any part of the Company’s claim, specifically pointing to the terms of the policy which provided that the insurer would pay those sums that the Company becomes legally obligated to pay as damages because of property damages to which the insurance applied.

Under Florida law, the intent of the parties to the contract governs the construction of a contract. Courts determine the intent of the parties by considering the language in the contract, the subject matter of the contract, and the object and purpose of the contract. In interpreting insurance policies, the courts read each policy as a whole, endeavoring to give every provision its full meaning and operative effect. In doing so, courts construe coverage provisions in the broadest possible manner to effect the greatest extent of coverage.

In this case, the insurer argued that it was entitled to summary judgment because the policy did not provide coverage for any part of the claim the Company filed with the insurer. The insurer argued, and the Court agreed, that the primary purpose of the type of commercial general liability insurance policy that the Company had was to protect the Company from third-party claims (i.e. claims brought by another party against the Company) incurred as a result of that Company’s business operations. The Court explained that the Company’s insurance policy was not a first-party commercial property insurance policy that covered the company’s machinery, equipment, business property, personal property, or loss of business income stemming from problems with the Company’s own machinery and other equipment. The Court further explained that the type of policy held by the Company was not meant to serve as first-party insurance, and therefore coverage under such policies is generally not available to pay for damage to property that the Company owns, or to compensate the Company to repair its own defective work. Therefore, because the Company’s insurance policy was not a first-party commercial property insurance policy, the Court held there was no coverage for any of the economic losses that the company sustained, and the Court granted the insurer’s motion for summary judgment.

This case demonstrates the difference between insurance policies that provide coverage for first-party claims and third-party claims. Most commercial general liability policies obtain by contractors for construction projects generally provide coverage to protect contractors from third-party claims incurred as a result of the company’s business operations or damage caused to property other than the contractor’s work as a result of the company’s operations.

About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, L.L.C., and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].

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