When faced with the impending application of an exclusion that negates any coverage for a claimed loss, an insured may sometimes resort to far-fetched or implausible arguments to contend that the exclusion does not apply, or that an exception to the exclusion has the effect of reviving coverage. The insured in Woodcliff Lake Board of Education v. Zurich American Insurance Company, 2013 N.J. Super. Unpub. LEXIS 2041 (N.J. App. Div. Aug. 14, 2013), attempted to do just that, but ran into the New Jersey Appellate Court, which reinforced the principle that the burden is on an insured to prove the applicability of an exception to an exclusion, and that an insured cannot simply make bald, unsupported assertions to stave off summary judgment.
In the summer of 2005, the plaintiff insured Board of Education was involved in overseeing and organizing construction projects at its local elementary and middle schools. During renovation of one building, asbestos was found “scattered throughout the gym, showers, and locker room…” The Board spent over $150,000 in emergency asbestos abatement services as a result of the improper removal of the asbestos. The Board was also fined $45,500 by the Environmental Protection Agency for the improper disturbance of the asbestos.
In January 2006, the Board filed a claim for coverage against its insurer Zurich under a policy that included exclusions for pollution (unless caused by a specified cause of loss) and workmanship. Zurich denied the claim. More than four years after the initial denial, the Board asked Zurich to reevaluate its coverage decision. Zurich again denied the claim, citing the pollution exclusion, and the inapplicability of additional coverage for “Pollutant Clean-up and Removal.” In response, and for the first time, the Board claimed that the asbestos damage was caused by vandalism, a “specified cause of loss” that would trigger an exception to the pollution exclusion.
The Board brought a declaratory judgment action against Zurich in April 2011, and both parties moved for summary judgment at the close of discovery. The trial court granted Zurich’s motion, finding that the Board had failed to show that the asbestos disturbance was caused by vandalism, and stating that “[a]lthough [the contractors’ actions] may have been inappropriate and unauthorized, such action does not rise to the level of vandalism. Negligence would be more appropriate; or poor workmanship or breach of contract.” The court concluded that the pollution and faulty workmanship exclusions barred the Board’s claim.
Conducting a de novo review, and using standard and well-accepted canons of contract interpretation, the New Jersey Appellate Court affirmed the decision of the lower court, finding that no coverage existed under the policy. Noting that “vandalism” was not defined in the policy, the Court looked to Webster’s and Black’s and found that “vandalism” requires property damage that must be “caused intentionally, with malice or, at least, with reckless or wanton disregard for the rights of others.” In reviewing the facts, the Court found that there was “no evidence of any trespasser coming onto the . . . property to wreak havoc with the asbestos.” The Court continued that “[t]he lack of such evidentiary support for a conclusion that vandalism caused the disturbance is so glaring that it would require us to adopt a ‘far-fetched interpretation of [the] policy exclusion’ to conclude that this loss was caused by vandalism and therefore covered by the Policy.” Furthermore, the Court found that the construction contractors’ workers’ failure to comply with the asbestos remediators’ requests to avoid the area did not rise to a level of reckless or wanton disregard for the rights of others that would trigger the vandalism exception.
This decision serves as a helpful reminder of the advantages that insurers possess when an insured makes an unexpected, Hail Mary coverage argument in an attempt to avoid the operation of an exclusion. In such a situation, the insurer will typically begin in a position of strength – the insured bears the burden when attempting to demonstrate the application of an exception to an exclusion, and the insured must also support its assertions with certain facts to avoid an unfavorable summary judgment ruling.