Readers may recall photos of a dangling tower crane boom after Hurricane Sandy passed through New York City in October 2012. The New York Court of Appeal has just issued a decision, ruling that damage to the tower crane is barred by the “contractor’s tools” exclusion in the builder’s risk policy. The case is
As discussed in this blog in late 2015, the lower appellate court held that the tower crane was not part of “temporary works” nor was it “incidental” to construction. The NY Court of Appeal has taken a different approach in construing the insurance policy.
First, the higher court noted the countering arguments in the lower court as to coverage, and concluded that there was an issue of fact as to whether the tower crane was a “temporary work.” But there was no need to remand the case to the trial court, as the Court of Appeal also held that the damage is barred by another exclusion. It stated: “we conclude that there is no coverage for [the crane] loss under the policy because any coverage afforded by that contract in the first instance is defeated by the contractor's tools exclusion.” That exclusion reads:
This Policy does not insure against loss or damage to ... Contractor's tools, machinery, plant and equipment including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROJECT, unless specifically endorsed to the Policy.
The court held that the tower crane fell squarely within the term “machinery,” and further that the exclusion was not so broad as to make coverage illusory (which was one of the arguments advanced in favor of coverage). For instance, formwork, falsework and temporary buildings would be within the temporary works coverage but would not be “tools.”
The NY high court came to the same conclusion as the lower courts, although by a different path. Thus, no coverage for the tower crane damage under the builder’s risk policy, due to the contractor’s tools exclusion. An expensive lesson in construing insurance policies, and surely one that will have a ripple effect with owners and contractors procuring insurance for projects with tower cranes.