Economic Losses May Be Recovered As Property Damages Under CGL Policy, Says State Court
Damage to business reputation and “delay” damages may be recoverable as “property damage” under a commercial general liability insurance policy, ruled the Louisiana Fourth Circuit Court of Appeal.
This decision arose out of property damage to the Rice Mill Lofts Apartments in New Orleans. The apartments suffered water damage during heavy thunderstorms and during Tropical Storm Lee and Hurricane Isaac, allegedly as a result of improper construction. Litigation ensued among the builder owner, the prime contractor in charge of renovations to the property, and a subcontractor. The insurers of these parties filed various motions for summary judgment regarding coverage.
One of the issues before the court was whether “economic damages” such as rent concessions, loss of income and business reputation, and delay damages, could be recovered as “property damage” under the CGL policies at issue. The policies contained familiar language providing that the insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of … ‘property damage’”. The policies defined “property damage” as:
“a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it…”.
The Fourth Circuit rejected the insurers’ arguments that the economic damage alleged in the lawsuit, which involve intangible or incorporeal damages, are not “property damage” within the meaning of the policy. The court distinguished a string of federal cases that focused on policy language requiring injury to “tangible property,” to reject awards of economic losses. The court observed that those federal cases did not involve an underlying injury or damage to tangible property. The underlying damage to the apartment building in the case before it, according to the Fourth Circuit, merited consideration of the economic loss claims.
Having determined that the economic loss claims could not be dismissed on summary judgment, the Fourth Circuit suggested that exclusions such as the “impaired property” exclusion potentially could exclude coverage. However, because the trial court granted summary judgment by determining that the economic losses did not trigger coverage, it had not considered whether any exclusions might apply. As a result, the Fourth Circuit remanded the case for further consideration of these arguments.
Gibbs Construction v. National Rice Mill, 2017-0113 (La. App. 4 Cir. 2/21/18); 2018 La. App. LEXIS 301.