In general, liability insurance policies provide coverage only for accidental incidents or occurrences and not for liability arising from expected or intentional conduct or from breaches of contract. The New York State Appellate Division, First Department, discussed these principles in a decision involving a coverage dispute between a condominium association and its excess liability insurer, Great American Insurance Company.1
The condominium association was sued in an underlying action for property damage and bodily injury due to alleged toxic contamination of a unit located in the association’s building. The suit alleged, among other things, that the contamination was caused by the association’s breaches of its contractual obligations under its bylaws and by its violations of certain laws. The association’s liability insurer, Great American, disclaimed coverage on the grounds that the alleged contamination incident did not qualify as an accidental “occurrence” and that the lawsuit fell within an exclusion in the policy for claims arising from breach of contract.
The trial court granted the association’s motion for summary judgment declaring that the association was entitled to coverage, and, on appeal, the Appellate Division agreed. The court rejected the insurer’s position and ruled that the underlying incident constituted an occurrence, thereby triggering coverage under the policy. The court also held that the breach of contract policy exclusion did not apply to these facts and the alleged breaches of bylaws or declarations did not strip the incident of its accidental nature.
The court reasoned that the insurer’s attempt to equate breach of contract with intentional conduct would render the term “accident” meaningless. The court emphasized that unintended consequences, even if arising from contractual obligations, can be accidental. Further, the court stated that the breach of contract exclusion must be narrowly construed and that courts must look to the factual origin of the harm and not the legal theory asserted.
This decision is a reminder that liability insurers and their attorneys must carefully assess coverage based on the terms and conditions of the insurance policies, not the theories of liability asserted against the insured in the underlying action.
If you have any questions regarding the content of this alert, please contact Radhika Shukla, associate, at rshukla@barclaydamon.com; Tony Piazza or Mark Whitford, Insurance Coverage & Regulation Practice Area co-chairs, at apiazza@barclaydamon.com and mwhitford@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.
1Cobblestone Lofts Condominium v. Great Am. Ins. Co., 241 A.D.3d 441 (1st Dep’t 2025).