Appellate Reversal Preserves Insurer's Right to Deny Coverage of Construction Damages Litigation May 2, 2013

Brendan T. Fitzpatrick, a partner in Goldberg Segalla’s Appellate Practice Group, convinced an appellate court to reverse a trial court decision that would have forced our client to cover an insured construction company following a building collapse. This decision built favorable precedent for insurers in cases involving construction litigation.

The insured managed the construction of an office and retail building when an adjacent building collapsed and others nearby were damaged; this resulted in multiple lawsuits against the insured contractor.

In the very early stages of the litigation concerning the damages, the insurer initially agreed, under a reservation of rights, to cover the contractor in the litigation; it later notified the insured that the policy’s earth-movement exclusion might apply, but that it would continue to provide a defense. Although the insurer did not officially deny coverage, the insured then brought our client into the damages’ lawsuit, and the trial court found that the insurer was equitably estopped from disclaiming coverage because of its prior involvement in providing a defense.

The Appellate Division, First Department overturned the trial court’s decision because the Court of Appeals “has only found estoppel in cases where, by the time the insurer attempted to avoid liability under the policy, the underlying litigation against the insured had reached a point where the course of the litigation had been fully charted.”

The decision was reported in “Arch Insurance Gets Coverage Ruling Tossed in Appeals Court,” Law360 Insurance, May 3, 2013.