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Vol. 5, Iss. 5
April 29, 2016

Phew: Supreme Court: Occurrence-Based CGL Policies Do Not Violate Public Policy

 

Wow, what a monkey wrench that would have thrown into things if the Supreme Court of Rhode Island held that occurrence-based general liability policies violated public policy. Talk about an Emily Litella “never mind” moment. But the biggest court of the smallest state declined to make such decision.

The facts giving rise to the issue in Van Hoesen v. Lloyd’s of London, No. 2015–209 (R.I. Mar. 24, 2016) are quite simple. Mark Van Hoesen was seriously injured when he fell from a deck on July 23, 2012. Mr. Van Hoesen filed a complaint, alleging that a contractor, Brian Leonard, negligently constructed the deck. Lloyd’s issued a liability policy to Leonard from March 8, 2007 to August 29, 2007. The policy was on the risk during the time that Mr. Leonard was building the deck. The policy was not on the risk when Mr. Leonard fell.

Lloyd’s maintained that no coverage was owed on the basis that the policy only applied to bodily injury that occurred during the policy period and there was no question that Mr. Van Hoesen’s bodily injury did not occur during the policy period. The trial court had no trouble agreeing with this (nor should any court reading a standard CGL policy).

The injured Mr. Van Hoesen (and plaintiff in the coverage action) sought a second bite at the apple at the Rhode Island Supreme Court. Presumably seeing the challenge that the policy language presented, Mr. Van Hoesen took a different tack – public policy. Putting aside some successes on the punitive damages front, policyholders generally don’t fare too well when arguing that public policy considerations support an entitlement to coverage. But for Mr. Van Hoesen, his options were limited.

Mr. Van Hoesen argued that, “notwithstanding the plain language in the policy that would exclude any claim arising from Leonard’s negligence from coverage, the policy, if enforced as written, would contravene ‘both the letter and the spirit’ of G.L.1956 § 5–65–7(a), which requires that: ‘Throughout the period of registration, the contractor shall have in effect public liability and property damage insurance covering the work of that contractor which shall be subject to this chapter in not less than the following amount: five hundred thousand dollars ($500,000) combined single limit, bodily injury and property damage.’”

Essentially, the argument was that, because the policy covered only injuries that occurred while the policy was in force, it provided almost no coverage at all, and, certainly, none in the current case. Thus, it was argued that “[t]he statutorily mandated coverage is rendered a nullity.” The called this argument “creative,” but, nonetheless, unconvincing.

The Van Hoesen court was not willing to depart from the clear policy language, holding that “§ 5–65–7 requires only that contractors maintain certain insurance; it imposes no duty on the insurance company to provide coverage for bodily injuries that might happen outside the policy period. If this Court were to hold as plaintiffs ask, the result would be that insurers would have ongoing liability for injuries to third parties long after the contractual relationship with the insured has ended. The General Assembly has enacted no such scheme.”

The most interesting part of the decision is the court’s rejection of the argument that “to carry out the aims of § 5–65–7, the policy should cover their claims because the triggering event that caused Mr. Van Hoesen’s bodily injury was Leonard’s faulty workmanship, which occurred during the policy period.” But the policy language would simply not be overcome: “[W]e conclude from the terms of the contract, that for the plaintiffs’ claims to be covered, the ‘bodily injury’ must also have occurred during the policy period.”

What makes Van Hoesen an interesting decision is that it gets to the heart of what many homeowners may not appreciate when it comes to hiring a contractor to do work in their home. Any prudent homeowner is going to require that a contractor have a liability insurance policy before being allowed to do work in their home. Contractors know this and they tout themselves in their ads as being “insured.” And homeowners feel good when they get a copy of a Certificate of Insurance, from their soon-to-be bathroom remodeler, demonstrating an in-force CGL policy.

Lots can go wrong when a contractor is working in a home – bodily injuries, and property damage that may not be excluded by exclusions j(5) or j(6). But any potential insurance, for bodily injury and property damage that takes place after the work is completed – also worthwhile to have, as this case demonstrates -- requires that the contractor continue to have insurance in place. And it’s a safe bet that homeowners aren’t checking on this or requiring it from their contractors.

Making sure that a contractor has a liability insurance policy in place, before being allowed to do work in your home, is critical. But a contractor that touts, on the side of its truck, that it has insurance, may only be telling part of the story.

 

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