Nova Cas. Co. v. Central Mut. Ins. Co.
(3rd Dept., decided 2/5/2009)
If you were in the business of exterior painting and had a commercial liability policy that excluded coverage for bodily injury or property damage from "spray painting operations", would you expect that exclusion to apply to damage caused by the spray application of a protective sealant instead of paint? No, not if that was your weekend job and sat as a justice during weekdays on the Third Department, Appellant Division.
Nova Casualty Company insured a painting contractor, who was hired to apply a protective sealant to the exterior cedar wood siding of a customer's home. As the sealant was being applied, drop cloths were used to catch any of the solution that dripped during the application process. The drop cloths were then stored in an enclosed porch at the rear of the customer's home. Later, the home was significantly damaged by a fire that the homeowners claimed was caused by the spontaneous combustion of chemicals in the sealant that had collected on the drop cloths.
Central Mutual Insurance Company insured and paid the homeowners for the fire damage. It then commenced a subrogation action against Nova's insured to recover its claim payments. Nova agreed to defend its insured, but disclaimed indemnification coverage based on two policy exclusions: the first "bodily injury and property damage arising out of [s]pray [p]ainting [o]perations"; and the second for for any damage "to that specific part of real property on which work is being performed ... if the 'property damage' arises out of such work." Nova then commenced this declaratory judgment action, seeking a declaration that it was not obligated under its policy to indemnify or defend its insured in the underlying subrogation action. Defendants Central Mutual and its insureds successfully moved for summary judgment, and Nova appealed.
In AFFIRMING the lower court's award of summary judgment to the defendants, the Third Department ruled first that the spray painting operations exclusion was ambiguous as applied to the facts of the loss in question:
Nova's insured had brushed as well as sprayed sealant onto the cedar shingle siding. The court also found that since nothing in the record supported a finding that the fire resulted from sealant that had been sprayed as opposed to brushed onto the siding, the policy exclusion could not apply.Initially, we note that to gain the benefit of an exclusion clause in an insurance policy, the insurer has the burden of demonstrating "that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case" (Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652 ; see RJC Realty Holding Corp. v Republic Franklin Ins. Co., Utica Natl. Ins. Group, 2 NY3d 158, 165 ; Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175 ; Villanueva v Preferred Mut. Ins. Co., 48 AD3d 1015, 1016 ). As for the particular provisions in question here, plaintiff argues that the policy exempts it from liability because it specifically excludes from coverage any "bodily injury and property damage arising out of [s]pray [p]ainting [o]perations." However, nowhere in the policy is the term spray painting operations defined or is it specifically stated that such an operation includes the application of sealants or other nontraditional paint materials. Here, the uncontroverted testimony established that Bennett and Pesano were not using a paint; instead, they were applying a product called "Cabot Clear Solution." Given that sealants, as opposed to paints, were not covered by the express wording of the exclusion, this clause, as it is applied to these facts, is, at best, ambiguous and the existence of such an ambiguity serves to bar its application to the facts as presented by this claim (see Villanueva v Preferred Mut. Ins. Co., 48 AD3d at 1016; Boggs v Commercial Mut. Ins. Co., 220 AD2d 973, 974 ; General Acc. Ins. Co. v United States Fid. & Guar. Ins. Co., 193 AD2d 135, 138 ).
Lastly with respect to the spray painting operations exclusion, the court noted that "[Nova] urges the adoption of an interpretation of this clause that, if correct, would have been applied to any work performed by [Nova's insured] on the  home and, as such, would have resulted in there being no coverage under this policy. Such a result would have obviously been at odds with [the insured]'s 'reasonable expectations as a businessperson seeking insurance coverage for injuries resulting from the operation of his [painting] business' (Kramarik v Travelers, 25 AD3d 960, 962 )."
The Third Department also agreed with the lower court's rejection of Nova's reliance on the policy's work product exclusion of damages "to that specific part of real property on which work is being performed ... if the 'property damage' arises out of such work." Noting that such a work product exclusion exists to exclude coverage for business risks, including claims that the insured's product or completed work was not that for which the damaged person bargained, the court held:
Finally, the court also rejected Nova's argument that summary judgment was granted prematurely because Nova had not been given an opportunity to conduct meaningful discovery:The [homeowners'] claim is not that they were damaged as the result of the quality of [Nova's insured's] work or that he misapplied the sealant to the siding of their home. Instead, their claim is that the home was damaged by a fire caused by the negligent manner in which [he] and his employees stored materials and equipment used on the job after the sealant had been applied (citations omitted). This exclusion is clearly not intended to exempt from coverage under a general commercial liability policy physical damage caused by the negligence of an insured; instead, it was designed to apply to those situations where coverage is sought "for contractual liability of the insured for economic loss because the product or completed work is not what the damaged person bargained for" (Hartford Acc. & Index. Co. v Reale & Sons, 228 AD2d 935, 936 ). For these reasons, this exclusion does not apply.
The reported decision does not provide or reflect any underwriting intent for the spray painting operations exclusion, leaving open the question of whether that exclusion was intended only to apply to overspray damage claims. Regardless, when an insurance policy uses in an exclusionary provision a non-standard term that is not defined, the chance that a court will find it ambiguous and interpret it against the insurer substantially increases. Such was the outcome in this case.[Nova] not only has been on notice of the existence of this fire and the implications that it held for its policy since shortly after this fire occurred, it also played an intimate and important role in providing the insured with a defense in the underlying litigation. In addition, [Nova] has failed to identify how it, in the course of these proceedings, has been prevented from obtaining what it contends is relevant evidence on the issues that have been raised and resolved by Supreme Court in its determination of this motion for summary judgment (see Zinter Handling, Inc. v Britton, 46 AD3d 998, 1001 ).