A federal court in New York ruled an excess liability policy must respond to losses from a Manhattan apartment building fire, after finding a residential construction exclusion would wipe out coverage and reflect a mutual mistake, according to BestWire.
The dispute traces back to a 2021 fire at a Manhattan apartment building, where Systems 2000 Plumbing Services was replacing valves. The loss exposed the contractor to multimillion-dollar claims tied to residential work it performed daily.
The ruling came from the United States District Court for the Southern District of New York, which took a hard look at how the coverage was sold versus how it was later enforced.
The primary liability policy, issued by The Travelers Indemnity Co. of Connecticut, carried a $2 mn limit. On paper, it contained a residential construction exclusion. The trouble started well before the fire.
When Systems 2000 signed the policy proposal, the exclusion language never appeared. The proposal referenced an obscure exc-hazard-connected designated exposure exclusion, which the court found was intended to describe residential work. The actual exclusion wording surfaced only after the claim landed.
After the loss, Travelers reviewed Systems 2000’s operations and concluded its work was entirely residential. Even so, the carrier declined to rescind the policy. It first denied coverage, then reversed position, removed the exclusion, and paid the full $2 mn primary limit.
The excess layer told a different story. GuideOne National Insurance Co. issued a follow-form excess policy with $4 mn in additional limits. GuideOne denied coverage based on the same residential exclusion and held that line even after Travelers dropped it.
At trial, the court rejected that stance. Evidence showed GuideOne knew Systems 2000 focused on apartment buildings and intended to insure that work when it bound the excess policy.
GuideOne’s head of excess and surplus casualty testified the carrier meant to cover plumbing services performed in residential buildings. The testimony also showed Systems 2000 paid a higher premium precisely because of the residential exposure.
GuideOne argued the contractor should have known the exclusion applied. The court disagreed. Systems 2000 clearly stated the coverage it sought. There was no effort to insure a different risk. The problem sat in the wording, not the intent.
The court found no meeting of the minds when the excess policy was bound. Both sides, the ruling said, understood, intended, and agreed the policy would cover residential apartment work.
Applying the exclusion would have eliminated coverage entirely, since all of Systems 2000’s operations involved residential buildings. The court said that outcome would render the policy meaningless.
The fix was direct. The residential-work exclusion was struck from the excess policy.
With that ruling in place, all remaining claims against Travelers were dismissed as moot. Any cross-claims were dismissed without prejudice.
