Tower crane is neither “temporary works” nor “incidental” to construction; damage excluded from builder’s risk coverage
Many readers will remember seeing photos and videos of a dangling tower crane boom, high above the Manhattan skyline, resulting from Hurricane Sandy. A divided (3-2) New York appellate court has ruled against the One57 building owner and construction manager on a builder’s risk claim seeking to recover costs for damage to the crane. The nub of the decision is that the tower crane did not fall within the definition of “temporary works” in that it was not “incidental” to construction. In fact, the appellate court stated that the crane “was integral, not ‘incidental to the project,’” and thus did not come within the policy definition of “temporary works.” Since it was not a “temporary work,” the crane and resulting damage were not covered by the builder’s risk policy. The difference between the majority and dissenting opinions was in how they defined and applied “temporary” and “incidental.”
With any insurance coverage dispute, policy language is paramount. The decision noted the following:
The insuring agreement provides that the "[p]olicy, subject to [its] terms, exclusions, limitations and conditions ... insures against all risks of direct physical loss of or damage to Covered Property while at the location of the INSURED PROJECT* and occurring during the Policy Term." Covered Property includes "Property Under Construction" and "Temporary Works."
The policy defines "Temporary Works," as
"[a]ll scaffolding (including scaffolding erection costs), formwork, falsework, shoring, fences and temporary buildings or structures, including office and job site trailers, all incidental to the project, the value of which has been included in the estimated TOTAL PROJECT VALUE* of the INSURED PROJECT* declared by the NAMED INSURED."
The policy excludes 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 owner and CM argued that the crane was a temporary structure to be used only during construction and then dismantled. By implication, they argued a much broader use of that term than the examples given in the policy. The owner and CM also argued that the word “incidental” could be used to connote something in a supporting role, although not necessarily an insignificant role.
The tower crane was obviously not “property under construction,” and so the analysis was whether it was part of “temporary works.” The majority examined the list of examples given provided in the policy – scaffolding, formwork, job site trailers, etc. – and concluded that the tower crane did not fit into the type of items listed. Also, and more critically, the court focused on the phrase “all incidental to the project” in its assessment. Citing to numerous aspects of the tower crane design and construction, much less to its use during construction, the appellate court noted that the crane was specifically designed for the project, the building structure was also designed uniquely for the crane, and once erected the crane “was integral and indispensable, not incidental” to construction.
The dissent also focused on the nature of the term “temporary works,” but would have applied that phrase more broadly than the majority. The dissent found, as well, the owner’s and contractor’s argument about the word “incidental” to be more persuasive.
The case is Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. Co., 2015 N.Y. App. Div. LEXIS 9390 (Dec. 22, 2015), available here (subscription required). With a $7 million insurance claim at stake, this case might be taken up to the NY Court of Appeal. We may not yet have the final word.