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Lend Lease (US) Construction LMB Inc. v. Zurich American Insurance Co.

New York Court of Appeals

February 14, 2017

Lend Lease (US) Construction LMB Inc., et al., Appellants,
v.
Zurich American Insurance Company, et al., Respondents.

          Matthew J. Lodge, for appellant Lend Lease (US) Construction.

          Richard J. Lambert, for appellant Extell West 57th Street LLC.

          Philip C. Silverberg, for respondents.

          FAHEY, J.

         In this action, plaintiffs seek a declaration of coverage under a program of builder's risk insurance furnished by defendants for loss - specifically, damage to a tower crane - caused by Superstorm Sandy. At issue here is the question whether the crane is covered in the first instance under the insurance provided for temporary works and, if so, whether the contractor's tools exclusion defeats that initial grant of coverage. Also at issue - and critical to our analysis - is the question whether the contractor's tools exclusion is ineffective because it would render the coverage granted in the first instance for temporary works illusory. Assuming that the policy contains coverage for the crane in the first instance, we conclude that the contractor's tools exclusion would defeat that coverage, and that such exclusion does not render the coverage afforded under the temporary works provision of the policy illusory. We therefore affirm the Appellate Division order granting summary judgment declaring that defendants have no obligation to provide coverage for the subject loss under the policy.

         I.

         In October 2012, plaintiff Extell West 57th Street LLC (Extell) was constructing a 74-story skyscraper - commonly known as the One57 Building - at 157 West 57th Street in Manhattan. Extell had retained plaintiff Lend Lease (US) Construction LMB Inc. (Lend Lease) to act as the construction manager for that project and, in that capacity, Lend Lease had contracted with nonparty Pinnacle Industries II, LLC (Pinnacle) for certain structural concrete work with respect to that endeavor. Pursuant to its contract with Lend Lease, Pinnacle was to furnish and install, among other things, two diesel fuel tower cranes.

         Only one of those cranes is at issue here. That crane was installed on a reinforced slab on the 20th floor of the building and, once all other trade work was completed at the project, it was to be dismantled and removed from the site. Several components of the crane, including beams cast into the slab and materials reinforcing the locations at which the crane was "tied" to the building as it arose next to that edifice, were designed to permanently remain part of the building upon the completion of construction.

         By October 29, 2012, the crane had risen approximately 750 feet from its base. On that day, Superstorm Sandy made landfall in the New York City area. One of the most dramatic images of that landfall depicts the damage caused to the crane when the boom of the crane collapsed in high winds and teetered precariously from a height equal to the top of the building. Afterwards, "[t]he... blocks [surrounding the building] were evacuated for six days and the crisis became a riveting symbol of the city's wounded infrastructure" (Charles V. Bagli, As Crane Hung in the Sky, a Drama Unfolded to Prevent a Catastrophe Below, New York Times, Nov. 6, 2012 [available at: http://www.nytimes.com/2012/11/07/nyregion/drama-behind-securing-crippled-crane-in-manhattan.html]).

         At the time of that incident, Extell was the named insured on a program of builder's risk insurance containing coverage in the amount of $700 million, that is, the total estimated cost of the project. The program is referred to as the "policy, " but it actually is an amalgamation of five separate insurance contracts, each of which was issued by a different defendant-insurer and each of which covers a different percentage of the aggregate risk. Defendant Zurich American Insurance Company assumed half of the aggregate risk and furnished the "lead" policy with respect to that exposure.

         At issue in this action is whether the policy covers damages sustained by Extell (the named insured) and Lend Lease (an additional insured) resulting from the weather-related harm to the crane [1]. That determination turns on whether the crane is covered under the policy in the first instance and, if so, whether the policy's contractor's tools, machinery, plant and equipment exclusion (generally, contractor's tools exclusion) defeats that coverage. [2]

         Following defendants' denial and disclaimer of coverage with respect to this matter, [3] plaintiffs commenced this action seeking, among other things, a declaration that the crane is covered property under the policy, and that coverage for the crane is not subject to any policy exclusion.

         Supreme Court entered an order denying the competing motions and cross motions for summary judgment that eventually were filed with respect to that coverage question, ruling that there is an issue of fact whether the contractor's tools exclusion defeats coverage for the subject loss. On appeal, however, the Appellate Division - with two Justices dissenting modified that order by granting defendants' cross motions for summary judgment and declaring "that defendants have no obligation to provide coverage under the... policy" (136 A.D.3d 52, 61 [1st Dept 2015]). The court held that "the... crane was integral, not 'incidental to the project, ' and therefore does not fall within the [policy's] definition of Temporary Works" (id. at 54). "Even if the... crane fell within the definition of Temporary Works, " the court added, "the contractor's tools ... exclusion would be applicable and... enforceable" (id.). By contrast, the dissenters would have affirmed Supreme Court's order, reasoning that there is an issue of fact whether the policy contains coverage for the crane in the first instance (see id. at 69 [Mazzarelli, J.P., and Richter, J., dissenting]), and that, although the contractor's tools exclusion pertains to the crane, such exclusion is unenforceable because to apply that exclusion here "would be to render coverage for temporary works illusory" (id. at 70). In essence, the dissenters concluded that the application of the contractor's tools exclusion effectively would defeat all of the coverage granted in the first instance by the policy's temporary works provision, and that such exclusion therefore is unenforceable as a matter of public policy.

         Plaintiffs appeal to this Court as of right (see CPLR 5601 [a]), and we now ...


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