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Lend Lease (US) Constr. LMB Inc. v. Zurich Am. Ins. Co., 28 N.Y.3d 675 (2017)

After a hard fought litigation, on February 14, 2017 the New York Court of Appeals ruled in favor of Mound Cotton’s clients, Zurich American Insurance Company, ACE American Insurance Company, XL Insurance America, Inc., Travelers Excess and Surplus Lines Company, and AXIS Surplus Insurance Company (together, the “Insurers”), and affirmed the Appellate Division’s December 22, 2015 grant of summary judgment.

During the construction of a 74-story skyscraper at the One57 Building in Manhattan, a diesel fuel tower crane was damaged as a result of Superstorm Sandy.  The crane at issue was installed temporarily on a reinforced slab on the building’s 20th floor.  The damaged crane became emblematic of the destructive force of Sandy. See Charles V. Bagli, As Crane Hung in the Sky, A Drama Unfolded to Prevent a Catastrophe Below, New York Times, Nov. 6, 2012, at http://www.nytimes.com/2012/11/07/myregion/drama-behind-securing-crippled-crane-in-manhattan.html.

A dispute arose as to whether the crane was covered as “Temporary Works,” and, if so, whether the policy’s contractors tools, machinery, plant and equipment exclusion precluded coverage.

A 3-2 majority of the Appellate Division agreed with the Insurers that the tower crane did not constitute a covered “Temporary Works” as defined in the policy.  Specifically, the court held that the tower crane could not be considered a “temporary structure” as used in the definition of “Temporary Works,” because it was not “incidental to the project.”  The court also held that the tower crane constituted “equipment” as used in the contractor’s machinery and equipment exclusion, and was therefore excluded property under the policy.  Extell and Lend Lease appealed as of right to the Court of Appeals.

Although the Court of Appeals affirmed the Appellate Division’s decision, it did so on slightly different grounds.  It parted ways with the Appellate Division to find that the crane was both a “structure” and “temporary” “in that it was anchored and tied to the building only ‘during construction’ and was to be ‘removed when…no longer needed.’”  In so finding, the Court downplayed the parties’ dispute as to whether the crane was ‘incidental’ to the Project.

Nonetheless, the Court agreed with the Appellate Division’s majority that the policy exclusion for contractor’s tools, machinery, plant and equipment applied, and, thus, “any coverage afforded by that contract in the first instance is defeated by the contractor’s tools exclusion.”  Whereas the Appellate Division considered the crane to be contractor’s equipment, the Court of Appeals found that the crane “falls squarely within” the dictionary definition of “machinery.”  The Court rejected Extell’s argument that certain crane components (reinforcements and ties) were destined to remain part of the building and, therefore, warranted a different result.  In applying the exclusion, the Court also held that it was not so broad as to render coverage under the Temporary Works provision illusory, because that provision still could provide coverage “for such things as the cost of erecting scaffolding, for ‘temporary buildings,’ and for such other things as ‘formwork, falsework, shoring [and] fences,’ which are not ‘tools’ within the meaning of the exclusion.”

For any inquiries about this decision, please contact partners Phil Silverberg, Mark Katz, or Sanjit Shah, or associate Andrew Rice.