Lend Lease (US) Construction LMB Inc. v. Zurich American Insurance

OPINION OF THE COURT

Plaintiffs Extell West 57th Street LLC and Lend Lease (US) Construction LMB Inc. are the owner and construction *54manager of a project to erect a 74-story mixed-use hotel and residential building in Manhattan. In this breach of contract and declaratory judgment action, plaintiffs seek coverage under a $700,000,000 builder’s risk policy, consisting of five separate policies issued by defendants with identical terms, for damage caused by Superstorm Sandy’s dislodgement and partial destruction of a tower crane that was affixed to the building for use in the performance of the construction work.

The insuring agreement provides that the “[p]olicy, subject to [its] terms, exclusions, limitations and conditions . . . insures against all risks of direct physical loss of or damage to Covered Property while at the location of the INSURED PROJECT* and occurring during the Policy Term.” Covered Property includes “Property Under Construction” and “Temporary Works.”

The policy defines “Temporary Works,” as “[a]ll scaffolding (including scaffolding erection costs), formwork, falsework, shoring, fences, and temporary buildings or structures, including office and job site trailers, all incidental to the project, the value of which has been included in the estimated TOTAL PROJECT VALUE* of the INSURED PROJECT* declared by the Named Insured.”

The policy excludes coverage for “[c]ontractor’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 tower crane was integral, not “incidental to the project,” and therefore does not fall within the definition of Temporary Works. Even if the tower crane fell within the definition of Temporary Works, the contractor’s tools, machinery, plant and equipment exclusion would be applicable and, contrary to the opinion of the dissent, enforceable. Accordingly, the order on appeal should be modified to grant defendants’ motion for summary judgment and to declare that defendants have no obligation to provide coverage.

Lend Lease contracted with nonparty Pinnacle Industries II, LLC (Pinnacle) to furnish and install all superstructure concrete work for the project, which was included as a line item in Extell’s budget with a value of $89,000,000. The contract provided, inter alia, that Pinnacle would supply “[d]iesel fuel tower cranes, all cherry pickers, any assist cranes, *55concrete pumps, and other heavy equipment required for the erection of the building.” This included two cranes, whose “locations, lay outs and structural supports required [we]re to be designed by a licensed New York State professional engineer (NYS PE) to meet all NYC DOB, NYC DOT, OSHA and Construction Manager criteria.” The contract further provided that Crane 2, the tower crane at issue in this appeal, “[wa]s to be supported by a reinforced slab on the 20th floor, included in this Contract, and associated supporting elements as required.”

Pinnacle rented the tower crane from Pinnacle Industries III, LLC (Pinnacle Industries III), a related company, at a cost of $77,000 per month. Under its contract with Lend Lease, Pinnacle was obligated to “secure, pay for, and maintain Property Insurance necessary for protection against loss” of the crane. Pinnacle Industries III also subleased the tower crane to a steel contractor working at the project, Post Road Iron Works, Inc., for $77,000 per month. Pursuant to that sublease, Post Road was obligated to maintain liability and property damage insurance, including “coverage for the contractual liability created by this sublease agreement.”

The 750-foot tall tower crane is a massive and sophisticated piece of equipment. Its components include (i) a turntable, which provided it with the ability to rotate as necessary; (ii) a working arm or boom, which was used to physically lift and move various items necessary to the construction of the building; (iii) various counterweights; (iv) a diesel-driven winch pack; and (v) a cab from where its necessary movements were controlled.

To support the tower crane and the loads it carried, Pinnacle built a base on the 20th floor of the building, which was bolted to a large pad of reinforced concrete that was strengthened and stabilized by beams encased into the floor slab. Plates were also cast into the shear walls connected by threaded rods. To provide increased stability, the mast of the tower crane, consisting of over 50 individual sections, was fastened or tied to the structural floor slabs at regular intervals, which required additional steel reinforcement of the slabs. Although the tower crane itself was to be completely removed from the project once its work was done, both the additional beams cast into the slab on the 20th floor, and the reinforcement of the floor slabs at the tie locations, were to permanently remain part of the building following the completion of construction.

On October 29, 2012, high winds from the superstorm caused the tower crane to partially collapse. The boom flipped over *56and some parts of the crane broke away, falling to the street below. Extell submitted a claim in the amount of $6,494,723.01 for damage to the tower crane and building, which defendants disclaimed on the grounds that the tower crane did not constitute covered property and/or was excluded property under the policy. This litigation ensued.

An insured bears the burden of establishing the existence of coverage (see Platek v Town of Hamburg, 24 NY3d 688, 694 [2015]). Unlike scaffolding, formwork, falsework, shoring and fences, the tower crane is not specifically identified in the definition of Temporary Works. Thus, to obtain coverage, plaintiffs must demonstrate, inter alia, that the tower crane is a “temporary structure” within the meaning of the clause.

In construing policy provisions defining the scope of coverage, courts “first look to the language of the policy” (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 221 [2002]), which is “interpreted according to common speech and consistent with the reasonable expectations of the average insured” (Cragg v Allstate Indem. Corp., 17 NY3d 118, 122 [2011]). Thus, “[u]nless otherwise defined by the policy, words and phrases are to be understood in their plain, ordinary, and popularly understood sense, rather than in a forced or technical sense” (Hartford Ins. Co. of Midwest v Halt, 223 AD2d 204, 212 [4th Dept 1996], lv denied 89 NY2d 813 [1997]).

Although ambiguous provisions “must be construed in favor of the insured and against the insurer,” unambiguous provisions “must be given their plain arid ordinary meaning” (White v Continental Cas. Co., 9 NY3d 264, 267 [2007]). Thus, courts will “not disregard clear provisions which the insurers inserted in the policies and the insured accepted, and equitable considerations will not allow an extension of coverage beyond its fair intent and meaning in order to obviate objections which might have been foreseen and guarded against” (Raymond Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 5 NY3d 157, 162 [2005] [internal quotation marks omitted]).

The test for ambiguity is whether the language of the insurance contract is “susceptible of two reasonable interpretations” (State of New York v Home Indem. Co., 66 NY2d 669, 671 [1985]). “That one party to the agreement may attach a particular, subjective meaning to a term that differs from the term’s plain meaning does not render the term ambiguous” (see Slattery Skanska Inc. v American Home Assur. Co., 67 AD3d 1, 14 [1st Dept 2009]). Nor does the lack of a definition, in and of itself, render a word ambiguous {id.).

*57The policy defines a temporary structure as something that is “incidental to the project.” Although the term incidental is not defined, “it is common practice for the courts of this State to refer to the dictionary to determine the plain and ordinary meaning of words to a contract” (2619 Realty v Fidelity & Guar. Ins. Co., 303 AD2d 299, 301 [1st Dept 2003] [internal quotation marks omitted], lv denied 100 NY2d 508 [2003]; see also R/S Assoc. v New York Job Dev. Auth., 98 NY2d 29, 33 [2002]; Chelsea Piers L.P. v Hudson Riv. Park Trust, 106 AD3d 410, 411 [1st Dept 2013]).

Black’s Law Dictionary (10th ed 2014) defines the term “incidental” as

“[subordinate to something of greater importance; having a minor role.” The American Heritage Dictionary of the English Language (5th ed 2011), defines incidental as “[o]f a minor, casual, or subordinate nature.” The Merriam-Webster Online Dictionary (http://www.merriam-webster.com/dictionary/ incidental) defines the term “incidental” as “being likely to ensue as a chance or minor consequence.”

Applying these definitions, the 750-foot tower crane is not a structure that is “incidental” to the project. Indeed, rather than ensuing by chance or minor consequence, as Extell’s senior vice-president of construction management acknowledged, the “[b]uilding was specifically designed to incorporate the Tower Crane during construction” and the crane’s design and erection involved an “in-depth process” that had to be approved by a structural engineer. Moreover, once it was integrated into the structure of the building, the custom designed tower crane, rather than serving a minor or subordinate role, was used to lift items such as concrete slabs, structural steel and equipment, was integral and indispensable, not incidental, to the construction of the 74-story high-rise, which could not have been built without it. Accordingly, the tower crane does not fall within the policy’s definition of Temporary Works.

The application of the rule of ejusdem generis would lead to the same conclusion. Under the rule of ejusdem generis, the meaning of a word in a series of words is determined “by the company it keeps” (People v Illardo, 48 NY2d 408, 416 [1979]). “[A] series of specific words describing things or concepts of a particular sort are used to explain the meaning of a general one in the same series” (Matter of Riefberg, 58 NY2d 134, 141 [1983]; see also 242-44 E. 77th St., LLC v Greater N.Y. Mut. Ins. Co., 31 AD3d 100, 103-104 [1st Dept 2006]).

*58The general term “temporary buildings or structures,” is described by the specific term “including office and job site trailers.” The 750-foot tower crane differs from office and job site trailers in many important ways. Unlike office and job site trailers, the tower crane (i) was furnished pursuant to a contract that included detailed instructions for its placement, design, erection, support and approval; (ii) is a sophisticated mechanized device, whose mast consisted of over 50 individual sections, that could only be operated by a licensed operator; and (iii) intended to physically lift and move various items necessary to the construction of the tower. Indeed, even if the meaning of the word “structure” is to be determined in conjunction not only with office and job site trailers but also with form-work, falsework, shoring and fences, this active participation in the construction work distinguishes the tower crane from those items, which provide access, support, and protection for the facility under construction that are incidental to the project.

The dissent believes that the tower crane is a “temporary structure” that was “incidental to the project.” The dissent equates the tower crane to office and job site trailers on the ground that it too is a substantial and critical mechanism employed to construct the tower, which remained on the site for a significant portion of the project, which was dismantled at the project’s end. However, this overstates the role office and job site trailers play in the actual construction work and turns the plain meaning of incidental, as something having a minor or subordinate role, on its head. While the tower crane is a mechanism that is integrated into the building and is crucial to the construction of the tower, office and job site trailers do not directly participate in the construction work and may be placed anywhere on or near the construction site.

The dissent disagrees, stating that the only sensible way to avoid reading the phrase “all incidental to the project” as superfluous is to interpret it as a catchall phrase capturing any “temporary structures” not specifically enumerated in the definition. However, a court “may not make or vary the contract of insurance to accomplish its notions of abstract justice or moral obligation” (Breed v Insurance Co. of N. Am., 46 NY2d 351, 355 [1978]) and may not “disregard the provisions of an insurance contract which are clear and unequivocal or accord a policy a strained construction merely because that interpretation is possible” (Broad St., LLC v Gulf Ins. Co., 37 AD3d 126, 131 [1st Dept 2006]). If the definition of Temporary Works was *59intended to include all temporary buildings and structures of every ilk, there would have been no need to add the language “including office and job site trailers, all incidental to the project.” Thus, the dissent’s interpretation, which in essence views every item assembled at the project that will not remain a permanent part of the building as a temporary structure incidental to the project, rewrites the plain language of the policy to include coverage that was never intended. In this regard, it bears repeating that because the Temporary Works clause is not ambiguous, we are not “constrained” to give the benefit of the doubt to plaintiffs, as the dissent asserts.

In any event, even if the tower crane could be considered Temporary Works under the policy, damage to it from Super-storm Sandy would not be covered by reason of the contractor’s tools, machinery, plant and equipment exclusion.

An insurer bears the burden of proving the applicability of an exclusion of coverage (Platek, 24 NY3d at 694). To rely on an exclusion to deny coverage, an insurer must demonstrate “that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case” (J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 126 AD3d 76, 83 [1st Dept 2015] [internal quotation marks omitted]). Defendants have satisfied this burden.

The record establishes that the tower crane is equipment that was used in the building’s construction and is not a permanent part of the building. Notably, the tower crane was provided by Pinnacle pursuant to a contract that characterizes it as “heavy equipment.” The tower crane is assembled when the project starts, disassembled and completely removed when the project is complete, and then moved to the next job. Thus, adhering to the basic tenets of contract interpretation by reading this exclusion in its entirety and ascribing to it its plain and ordinary meaning, the tower crane, is without question, contractor’s machinery or equipment that is excluded from coverage.

In this regard, I agree with the dissent insofar as it rejects plaintiffs’ argument that the tower crane does not constitute a tool or piece of equipment because of its size and sophistication. Moreover, contrary to the motion court’s determination that there is an issue of fact concerning whether the tower crane was to become a permanent part of the project, merely having a portion of the tower crane’s base left in the building is insufficient to remove the crane from the exclusion.

*60I do not agree with the dissent’s conclusion that to enforce the exclusion would render the coverage for Temporary Works illusory because the exclusion is so broad that a plausible argument could be made that any of the items listed in the definition of Temporary Works would also constitute a “ [contractor's tool[ ], machinery, plant [or] equipment.”

Construction of a clause so broad that it would appear to exclude what, as a practical matter, would be some of the largest foreseeable elements of damages may render coverage “nearly illusory” (Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356, 361 [1974]). Accordingly, exclusionary policy language should not be enforced when it defeats the main object of the purchased coverage, or virtually nullifies the coverage sought for anticipated risk. However, exclusions by their nature modify the scope of coverage provided in an insurance policy and “[a]n insurance policy is not illusory if it provides coverage for some acts; it is not illusory simply because of a potentially wide exclusion” (Associated Community Bancorp, Inc. v St. Paul Mercury Ins. Co., 118 AD3d 608, 608 [1st Dept 2014] [internal quotation marks omitted]).

Here, the contractor’s tools, machinery, plant and equipment exclusion did not render the policy illusory, because the policy provided some benefit to the insured and the exclusion does not negate all possible coverage for Temporary Works. Furthermore, putting aside the dissent’s overly broad interpretation of Temporary Works as encompassing virtually anything that pertains to the project, pursuant to the express terms of the exclusion, machinery and equipment is excluded “unless specifically endorsed to the Policy.” Thus, under the terms of the contractor’s tools, machinery, plant and equipment exclusion, coverage for the tower crane, or any item qualifying as Temporary Works, could have been endorsed onto the policy and the clause does not in and of itself deprive an insured from coverage for the damages he reasonably thought himself insured (see Thomas J. Lipton, Inc., 34 NY2d at 361).

Insofar as the dissent believes that the exclusion does not apply to the tower crane because it is a general provision that conflicts with the specific Temporary Works provision, I note that the tower crane is not specifically included in the Temporary Works provision and that plaintiffs rely on the principle of ejusdem generis to argue that the tower crane is a “temporary structure” within the meaning of that provision. Moreover, “[a]n exclusion . . . serves the purpose of taking out *61persons or events otherwise included within the defined scope of coverage” (Matter of Edwards v Motor Veh. Acc. Indem. Corp., 25 AD2d 420, 420 [1st Dept 1966]).

Thus, the clearly worded contractor’s tools, machinery, plant and equipment exclusion must be enforced as written to bar coverage under the particular facts of this case.

Accordingly, the order of the Supreme Court, New York County (Eileen A. Rakower, J.), entered on or about January 20, 2015, which denied plaintiffs’ respective motions and defendants’ cross motions for summary judgment, should be modified, on the law, to grant defendants’ cross motions for summary judgment and declare that defendants have no obligation to provide coverage under the builder’s risk policy, and otherwise affirmed, without costs.