On July 24, 2014, the Massachusetts Appeals Court issued an opinion arising out of a subcontractor’s clear-cutting of environmentally-sensitive property in Western Massachusetts.  The decision in Pacific Indemnity Company v. Lampro, et al., 86 Mass. App. Ct. 60 (2014), is notable because the court declared, as a matter of law, that the subcontractor’s erroneous actions were not a fortuitous event for which liability insurance was designed but, rather, a normal, forseeable, and expected incident of doing business.  The decision went on to examine the business risk exclusions and concluded that they also barred coverage on the facts presented.

Steven and Sue Levkoff hired Stephen Michael Designs (“SMD”) to perform landscaping work on property they owned in Monterey, Massachusetts, in January 2009.  They were planning to build a vacation home on the land, which abuts Lake Garfield and is considered an environmentally sensitive area.  The town’s conservation commission issued permits allowing the work to proceed, but requiring that it be in accordance with relevant environmental regulations.  In turn, SMD subcontracted the landscaping work.  For reasons not made clear in the record, the subcontractor failed to follow the conditions outlined in the permits and the engineering plans: he clear-cut the sloping land down to the lake shore.  The Levkoffs incurred about $140,000 in remediation costs.  Their homeowners’ carrier covered about $107,000 of those costs and brought a four-count subrogation claim against SMD.  Three of the counts settled during trial for $90,000.

The remaining claim, brought under the Massachusetts Consumer Protection Act, alleged that SMD’s general liability carrier had wrongly refused to settle.  Ruling on a motion for judgment on the pleadings, the state trial court concluded that SMD’s carrier could have no liability for two main reasons: first, because there had been no “occurrence” to trigger coverage; and, second, because the policy’s business risk exclusions barred coverage.

The Appeals Court affirmed.  The insuring agreement extended coverage to SMD only for property damage cased by an “occurrence,” the court noted.  The policy defined an “occurrence” as “an accident, including continuous or repeated exposure to the same general harmful conditions.”  While SMD’s subcontractor failed to follow the directions in the permit and the engineering plans, that failure was not “an unexpected happening without intention or design,” with the result that the over-zealous tree removal could not be deemed a “fortuitous or unexpected consequence” of the work.  The court went on to note that the business risk exclusions – the traditional exclusions (j)(5) and (j)(6) – also applied, because the property damage occurred to areas of the property on which SMD’s subcontractor was performing operations, and because the Levkoffs were seeking damages that resulted from work that was improperly done.  The court noted that the point of general liability insurance “is to protect [SMD] from the claims of injury or damage to others, but not to insure against economic loss sustained by [SMD] due to repairing or replacing its own defective work or products.”

The Appeals Court’s decision makes for interesting reading on both the issue of occurrences, and the business risk exclusions. Whether the holding will be limited to the facts present here remains to be seen.