In Herz v. 141 Bloomfield v. Penn-America Ins. Co.., the Appellate Division recently considered whether a landlord was owed a defense and indemnification under its CGL policy for a tenant’s lost profits and other consequential damages.  The claim arose when a restaurant owner sued his landlord for damages that ensued when a defective furnace resulted in bursting pipes.  As a result of water damage and the ensuing complications, the restaurant was forced to close for a period of time for repairs.

The restaurant operators’ complaint attributed the sequence of events to the landlord’s failure to properly maintain the furnace, failure to pay the water bill, and failure to maintain the septic tank.  The damages were all related to the restaurant’s constructive eviction from and loss of use of the premises.  However, its damages did not include any property damage, strictly speaking.

The landlord’s insurer denied coverage for the claim under various policy terms and conditions.  First, the policy excluded coverage for damage to property owned by the insured.  Since the tenant’s claims were only for consequential damages, there was no claim by a third party for property damage caused by a covered occurrence.  Moreover, the Appellate Division held that if the property damage to the insured’s property was excluded, consequential damages suffered by the tenant for loss of use would likewise be excluded.

Second, the policy’s pollution exclusion also applied.  As a result of improper maintenance of the septic system, the town shut down the restaurant because of a  threatened discharge of waste from the failed system.  The court held that the terms of the pollution exclusion precluded coverage for this threatened discharge.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .