Building Owner Entitled To Coverage For Asbestos Damage

NEW YORK — A building owner is entitled to $10 million in coverage, plus interest, for damage from asbestos contamination which resulted from water leakage, a New York trial court held Jan. 15 (Atlas Assurance Company of America d/b/a GRE Insurance Group, v. Newark Center Building Co., No. 119654/95-001. N.Y. Sup.. N.Y. Co.).

(Text of Decision in Section E. Mealey’s Document #03-980203-105.)

Newark Center Building Co. owns a 5-story building in Newark, N.J. which was leased by the state until 1991. In early 1994, water damage occurred due to roof cracks resulting from extreme winter weather.

Newark sought coverage for the water damage to the roof and building interior and for abatement of contamination by sprayed-on asbestos fireproofing on the upper floors which became friable by the water leakage.

Atlas Assurance Company of America filed this action seeking a declaration of no coverage.

New York Supreme Court Justice Beatrice Shainswit found that "defendant has every right to the coverage it seeks, in full, and that this lawsuit by plaintiff insurance company is without the slightest merit. Indeed, plaintiffs position borders so closely on the frivolous as to warrant serious consideration of defendant’s charge of bad faith."

The insurer argued that all of the damage was due, not to the roof cracking, but to leakage of water that occurred over an unspecified period, bringing it within an exclusion in the all-risk policy for continuous or repeated seepage or leakage of water that occurs for 14 days or longer.

Calling the insurer’s support for its position "minimal," the court found the carrier’s argument that the damage was "due to two weeks of leakage preceding the incident is rendered more worthless by its own inspections."

The insurer’s denial of an appraisal because the loss was not covered was made in bad faith, the court found, as the policy contemplates appraisal regardless of the carrier’s view on coverage.

"An insurance company has a responsibility to the public; it may not act as a spiteful child," Justice Shainswit said. "The court finds that this was a fully covered loss. Indeed, it is doubtful that plaintiff genuinely disagrees. On every issue except co-insurance . . . plaintiff’s evidence was wholly insubstantial and speculative."

Co-Insurance

The insurer argued that Newark under-insured the building and is entitled to only a proportionate share of any covered loss.

"Plaintiff’s position is again one of desperation," the court found. "To begin with: plaintiff, who brought this lawsuit, said noting about co-insurance in its complaint or in its reply to defendant’s affirmative defenses. No triable issues therefore exist as to co-insurance, since plaintiff failed to plead it as an affirmative defense to defendant’s counterclaim [citation omitted]. The issue accordingly never came up in discovery, or at any time before the trial. Nor will the court permit the plaintiff to amend its reply to assert this defense at this late date."

Even more significant is that fact that the insurer paid a prior claim for windstorm roof damage, effectively indicating the amount of insurance was sufficient, the court explained.

The court also found that all of the water damage was caused by the fortuitous event of the roof cracking as a result of the weight of water on the roof and that the roof was in good condition before the onset of the bad weather.

"Plaintiff, on the other hand, presented absolutely no evidence of substance discrediting defendant’s version or establishing any other cause for the concededly extensive water damage. There was not a shred of proof of any activity, construction, or event that could have caused the leakage other than the weather as presented by defendant’s witnesses, and I found the speculation as to defects in the 1989 roofing to be without support of any kind," the judge said.

Abatement

Upon review of the testimony presented, the court found the fair and reasonable cost of abating all of the asbestos contamination to be more than $7.8 million and cost of restoring fireproofing to be more than $3.2 million. Recovery under the policy is limited to $10 million, the court noted.

"Understandable as is plaintiff’s angry reaction when the asbestos issue became the center of negotiations — since at that point (some time before November, 1994) the apparent damages of $750,000 became the full value of the policy, $10,000,000— it is also absolutely clear that the entire amount sought by defendant for asbestos abatement was fully warranted and, moreover, that plaintiff knew this, because plaintiff in effect presented no defense and no alternate method of computing the asbestos damages," the court held.

Newark requested imposition of sanctions due to the insurer’s refusal to permit an appraisal and for its "essentially frivolous defenses on a number of issues.

"The court is sorely tempted to grant defendant’s request for sanctions, in view of the years of expense with which defendant has been burdened, not to mention the waste of court time by frivolous arguments and testimony. Obviously plaintiffs distinguished counsel, brought in specially from Ohio and faced with a recalcitrant client, had to stake its position on the co-insurance issue, for which there is fractionally more support than any other of plaintiff’s contentions. Since that argument is not a frivolous one, and in view of the substantial size of the verdict here, the court will hold its hand, in the exercise of grace, and impose no further costs on plaintiff," Justice Shainswit stated.

Newark is represented by Jonathan Wilkofsky and Mark Friedman of Wilkofsky, Friedman, Karel & Cummins of New York.

Atlas is represented by Galvano & Xanthakis of New York and by Buckley, King & Bluso of Cleveland.

For More Information Contact:

Wilkofsky, Friedman, Karel & Cummins
299 Broadway - Suite 1700, New York, NY 10007
Tel: 212-285-0510
FAX: 212-285-0531
Internet: info@wfkclaw.com

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