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November 9, 2020

CT Supreme Court Addresses Issue of First Impression on Coverage for Property Damage Liability Claim

In Nash Street, LLC v. Main Street America Assurance Company, the Connecticut Supreme Court held a liability insurer was not relieved of its duty to defend its insured in an underlying property damage lawsuit because there was legal uncertainty about how certain insurance policy exclusions would be interpreted.

The underlying suit arose from a home renovation project, which included foundation work to be performed by the insured, a contractor. As the insured or its subcontractor lifted the house in preparation for the foundation work, the house shifted off the supporting cribbing and collapsed. The owner sued the contractor for property damage arising out of the collapse, and the contractor’s liability insurer denied coverage for the claim based on exclusions in the policy for damage caused to the “particular part” of the property being worked on by the contractor or its subcontractor.

After obtaining a default judgment against the contractor, the owner brought a direct action against the insurer, arguing the particular part of property on which the contractor or its subcontractor was working was the site grading and foundation work underneath the house, not the house itself. Thus, the owner argued, the damage was not excluded under the policy. The trial court disagreed and granted the insurer summary judgment on the basis that the exclusions were clear and unambiguous and applied to the damage allegedly caused by the contractor’s operations performed on the entire house.

On appeal, the Connecticut Supreme Court reversed in favor of the owner. The court found there was the reasonable possibility of coverage since there was legal uncertainty regarding how the policy exclusions would be interpreted under Connecticut law. Specifically, there was no appellate decision on point regarding the application of the subject policy exclusions under similar circumstances. As such, the court held, the insurer was not entitled to summary judgment that it did not owe a duty to defend its insured. Notably, it appears a significant issue was not raised by the parties in their motions or on appeal, i.e., whether the construction defect/faulty workmanship claims constituted an “occurrence.”

The Nash Street case is a reminder that a liability insurer has a broad duty to defend, and in the event of any factual or legal uncertainty, the insurer generally should defend the insured. The insurer may at the same time reserve its rights and also consider pursuing a declaratory judgment action, if necessary, in order to determine the parties’ rights and obligations under the policy.

If you have any questions regarding the content in this alert, please contact Sanjeev Devabhakthuni, counsel, at; Matthew Paris, associate, at; or another member of the firm’s Insurance Coverage & Regulation Practice Area.


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