It mattered in Ment Bros Iron Works Co LLC v Interstate Fire
& Casualty Co (2d Circuit, 11 December 2012). Ment Bros, a
welding contractor, was working on the construction of a
development at 40 Mercer Street in New York and caused a fire. The
property-owner's insurer denied coverage on the grounds that
the policy excluded liability for property damage 'arising out
of the construction of residential properties' –
including a 'condominium' but excluding an
'apartment'. The latter term was defined as 'a unit of
residential real property in a multi-unit residential building or
project where all units are owned by and titled to a single person
or entity', the former in similar terms except that '...
each unit is separately owned and titled'. The New York
district court took the insurer's position: 40 Mercer was a
'residential property' but not an 'apartment', so
there was no duty to defend or indemnify the insured.
The 2d Circuit reversed. Under New York law, an insurer has the
onus to prove that a policy exclusion applies, but the insured
bears the burden of establishing the applicability of an exception
to the exclusion that would preserve coverage. Forty Mercer was
clearly a 'residential property'. But was it an
'apartment' or a 'condominium'? At the time the
fire occurred, the property developer had not actually sold any
units (although it clearly intended to do so at a later date). The
insured was, at the relevant time, still the sole owner of the
entire property, making it an 'apartment' for the purposes
of the policy. There was language in the policy which confirmed
this interpretation, in making reference to the conversion of an
'apartment' to a 'condominium' on the filing of the
required declaration under the state's condominium legislation.
This appeared to reflect a rational choice to provide insurance
where a piece of real property has a single owner but not where
there are multiple owners of units on the site. Even if it could be
said that the policy was ambiguous, that ambiguity would be
resolved in favour of coverage. The exception to the exclusion
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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