Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. CoAmong the numerous instances of extensive property damage caused by Super Storm Sandy was the crane collapse at the construction site of a mixed-use luxury condo/hotel, known as One57, located on West 57th Street in the heart of Midtown Manhattan. For weeks, New Yorkers and the nation were transfixed by images on the news of the collapsed crane dangling over the side of the building before pieces of it ultimately detached and plummeted to the streets below. The collapse caused substantial property damage, and the plaintiffs, who were the owner and construction manager of the project, sought coverage under a $700 million builder’s risk policy. The carriers disclaimed, arguing that the crane was not covered property under the policy. The plaintiffs filed a declaratory judgment action in Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. Co.  the carriers moved for, and were denied summary judgment, and appealed to the First Department.

The majority and dissent differed drastically on whether the crane should (1) be covered as a “Temporary Work” under the policy or (2) be disclaimed under the contractor’s tools, machinery, plant, and equipment exclusion. The policy defined “Temporary Work” as “[a]ll scaffolding…, formwork, falsework, shoring, fences and temporary buildings or structures, including office and job site trailers, all incidental to the project….” But, it excluded coverage for “[c]ontractor’s tools, machinery, plant and equipment including spare parts and accessories, whether owned, loaned, borrowed, hired or leased, and property of a similar nature not destined to become a permanent part of the INSURED PROJECT unless specifically endorsed to the policy.”

The majority held that the crane “was integral, not ‘incidental to the projects,’ and therefore did not fall within the definition of Temporary Works.” The majority referred to the plain meaning of “incidental” and resisted the claim that the term was ambiguous even though it was not defined in the policy. Further, the majority reasoned, even if were Temporary Work, the crane was provided for by a contract for “heavy equipment,” it was never intended to become a permanent fixture, was not identified in any endorsement, and, therefore, fell squarely within the contractor’s tools exclusion. The dissent found that the crane was erected to perform a temporary function, after which it would be dismantled. According to the dissent, the crane should be treated akin to onsite offices, which are critical to a project, not dismantled until the end of the project, and are considered temporary. In response, the majority compared the crane to the other objects mentioned in the definition, and observed that the crane was actively engaged in construction, whereas scaffolding and offices simply perform support or incidental functions.

The majority also responded to and rejected the dissent’s contention that their reading of the exclusion was so broad as to render coverage of Temporary Works “illusory.” In response, the majority observed that the exclusion did not negate all possible instances of coverage and, furthermore, that the dissent’s interpretation of Temporary Works was so overly broad as to include anything that pertains to the construction project. It warrants noting that both the majority and dissent rejected the plaintiffs’ position that “heavy equipment” is both too large and complicated to be qualify as a “tool.”

This case stands as a testament to the gray areas of contract interpretation. Both the majority and the dissent were forced to parse out the meaning of “incidental” by comparing the crane to other objects included in the definition. The case could have gone the other way had one judge, for instance, reasoned that a crane is as integral to construction as scaffolding, which is deemed temporary. The decision will likely be used in refuting potentially common fact based arguments, particularly the claim that heavy machinery is not a tool, and the position that the permanence of a mount potentially renders the equipment itself into a permanent fixture.

Thanks to Christopher Soverow for his contribution to this post.