New York Court Enforces Construction Management Exclusion

In its recent decision in Houston Cas. Co. v. Cavan Corp. of NY, Inc., 2018 N.Y. App. Div. LEXIS 1138 (N.Y. 1st Dep’t Feb. 20, 2018), a New York appellate court had occasion to consider the application of a construction management exclusion in a general liability policy.

Houston Casualty’s insured, Cavan, was a contracted construction manager for a building project in New York City.  Cavan later sought coverage in connection with an underlying worksite personal injury action in which Cavan was identified as “the general contractor and/or construction manager” for the project.

Houston Casualty denied coverage on the basis of a policy exclusion titled “Exclusion – Construction Management for a Fee” that precluded coverage for any loss “arising out of ‘construction management,’ regardless of whether such operations are conducted by you or on your behalf.”  The policy defined the term “construction management” as “the planning coordinating, supervising or controlling of construction activities while being compensated on a fee basis by an owner or developer.”

Although the trial court held that there were questions of fact as to whether Cavan was acting as a construction manager, the appellate court disagreed.  It concluded that while the complaint alleged that Cavan may have been the project’s general contractor, and while this may ultimately be the case under New York statutory law governing worksite injuries, the policy’s definition of “construction management” was broad enough to encompass work ordinarily coming within the scope of a general contractor so long as Cavan was being compensated on a fee basis.  The court found this requirement satisfied since Cavan received a flat fee for its services instead of progress payments more typically associated with payment to general contractors.