The United States First Circuit Court of Appeals recently decided an insurance coverage case which has implications for many of our clients. The issue presented to the Court in Essex Insurance Company v. Bloomsouth Flooring Corporation was whether, under Massachusetts law, a General Contractor was covered under a Comprehensive General Liability (CGL) insurance policy issued to a subcontractor for the costs it incurred as a result of indoor air quality problems in a commercial office building recently renovated by the General Contractor.
The subcontractor had been hired to install carpet tile on an existing concrete slab within the building. After the carpet tile was installed and the building was open for use, the occupants complained of noxious odors within the building. The General Contractor ultimately had to remove all of the carpet tile which had been installed within the building, scrape all mastic used to install the carpet tile off of the concrete slabs, install charcoal air filters within the building ventilation system, and shot blast all of the concrete slabs to remove any remnants of the original mastic before new carpet was installed. The General Contractor sought recovery of these costs from the insurance carrier who had issued a general liability policy to the carpeting subcontractor, to which the General Contractor had been added as an additional insured.
Of particular relevance are the Court’s holdings that: (1) noxious odors permeating an office building can constitute “property damage” under this type of CGL policy; and (2) because the mere removal of the carpet tile and mastic did not solve the problem in the building (and because the shot blasting and filtration system was required to eradicate the odors), the costs incurred by the General Contractor did not fall within the policy’s “impaired property” or “your product” exclusions. The determining factor for this second ruling was that pre-existing real property (the concrete slab) had, in addition to the carpet tile (“the product”), been damaged.
This is another in a series of recent decisions which demonstrates that, contrary to conventional wisdom, courts can find comprehensive general liability coverage for property damage to an insured contractor’s project in certain circumstances, particularly where the work in question was performed by subcontractors, or if the damaged property existed prior to the commencement of the project or was not constructed by the insured. In addition, the opinion illustrates that the manner in which an insured presents and describes a claim can significantly affect the manner in which the claim is handled by the insurer and is decided by the courts. Lastly, in recent years we have noted an increase in claims and issues relating to mastics of all types, particularly flooring mastics, which presumably result from tighter buildings and changes in the composition of mastic products as a result of the “green” building movement. Because of the complexity of the issues related to such claims, as illustrated in the recent First Circuit case, it is recommended that contractors seek the advice of experienced counsel as soon as they encounter such losses.