Attorneys: Lemley, Brandon K.
Related Industries: Construction
When are Demolition Blunders Intentional?
Summer 2006
It is a demolition company’s worst nightmare: you just destroyed the wrong property! You sleep soundly because you have an insurance policy, which you believe will take care of the mistake. However, many insurance policies do not provide coverage for intentional acts, as opposed to occurrences or accidents.
Example 1: A school district hires a construction company to clear property and construct a new high school. However, when it is time to bulldoze and raze the property, a worker believes a surveyor’s stake is a property marker, and razes adjacent—and wrong—property.
Example 2: A municipality hires a demolition company to destroy a building. There is some confusion about which building to destroy, and the municipality tells the company to destroy the wrong house, which it does.
While these two cases are similar, courts have held that the insurance company need only defend and indemnify in Example 1, but not in Example 2.
Example 1: West American Insurance
Example 1 is the recent case of West American Insurance Company v. Kamadulski Excavating & Grading Co., Inc., 2006 U.S. Dist. LEXIS 26196 (S.D. Ill. May 4, 2006). There, the owner of the adjacent property brought a lawsuit against the construction company, who, in turn, submitted the claim to its insurance company. The insurance company sought to limit its responsibility through a separate lawsuit.
The insurance company asked the court to decide whether the insurance policy covered the intentional acts of the construction company in destroying the wrong property. The court held that the policy applied.
The court found that there was an accident that triggered coverage. Specifically, the court held that contractor meant to clear the school’s property and not the adjacent property. The court found that the while the contractor intended to tear the trees down, it accidentally razed property outside the scope of its contract. Accordingly, the insurance company had to defend and indemnify the insured because the intentional acts resulted in an unintended injury.
Example 2: Century Surety
Example 2 is Century Surety Company v. Demolition & Development, Ltd., 2006 U.S. Dist. LEXIS 2128 (N.D. Ill. Jan. 18, 2006), which was subject of a recent article in the Winter issue of the Construction Law Quarterly.
In Century Surety, the court focused on the fact that the municipality specifically told the contractor to demolish the wrong building. The court held that this was not an accident or occurrence under the insurance policy because the contractor did exactly what it was hired to do. That is, the injury was the intended result of the intentional destruction. Therefore, the insurance company did not have to defend or indemnify its insured.
Squaring the Cases
How can you square West American Insurance with Century Surety?
The answer, it seems, lies with the foreseeability of the injury. In both cases, the contractors were hired to demolish property, and both did so intentionally. However, in West American Insurance, there was an accident attributable to the contractor. That is, the employee mistakenly believed that he was clearing land under the contract, when, in fact, he razed adjacent property. It was unforeseen by the contractor that his employee would demolish the wrong property.
In contrast, the contractor in Century Surety, made no mistake; he did exactly what he was hired to do. In taking orders from the municipality, it was entirely foreseeable that the contractor would tear down the wrong building because that is what he was told to do. That is, the contractor did not accidentally demolish the wrong building, he did so purposefully by following orders.
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