Continuous Exposure to Breach of Contract Terms is an Occurrence

"Accident" Includes Continuous or Repeated Exposure to Conditions
Post 5176

"Occurrence" is an Accident & Includes Repeated Damage

In The Cobblestone Lofts Condominium v. Great American Insurance Company, Admiral Indemnity Company et al., Appeal No. 4265, 2025 NY Slip Op 04749, Index No. 653189/21, Case No. 2024-01860, Supreme Court of New York, First Department (August 21, 2025)

FACTS

The Supreme Court of New York, First Department (trial court) dealt with a declaratory judgment action concerning an insurance coverage dispute. The plaintiff, a condominium association, was being sued for property damage and bodily injury caused by unintended water and moisture infiltration, resulting in toxic contamination of a condominium unit. The infiltration was allegedly caused by the plaintiff's breaches of its contractual obligations under its bylaws and condominium declarations, as well as violations of statutory duties under the Multiple Dwelling Law and the Administrative Code of the City of New York.

PRIMARY ISSUE

The was asked to resolve whether the Great American Insurance Company was obligated to provide coverage for the plaintiff under its policy. The policy covers liability for bodily injury and property damage caused by an "occurrence," which includes continuous or repeated exposure to harmful conditions.

Great American argued that the alleged damages were caused by the plaintiff's breaches of its bylaws and condominium declarations, and not by an accident. However, the term "occurrence" in the policy includes continuous exposure to harmful conditions caused by breaches of contract or statutory violations.

THE ORDER

The Supreme Court, New York County (Louis L. Nock, J.), order granted plaintiff's motion for summary judgment on its second cause of action declaring that defendant Great American Insurance Company was obligated to provide coverage for plaintiff.

Great American issued a "direct, definitive notice" to plaintiff disclaiming coverage. By letter dated September 17, 2018, Great American notified plaintiff that its policy does not afford coverage because:

 a breach of contract is not an accident and, therefore, does not constitute an "occurrence" under the Primary Policy or Umbrella Policy and
 because the Primary Policy excludes coverage for breach of contract.

Contrary to Great American's argument, the denial letter is a repudiation of plaintiff's rights.  Great American will be obligated to indemnify plaintiff for any liability imposed upon it in the underlying action that is in excess of the policy issued by Admiral Indemnity Company the primary insurer to Great American's umbrella policy.

The Great American policy covers liability for bodily injury and property damage "that takes place during the Policy Period and is caused by an 'occurrence' happening anywhere..." The term "occurrence" is defined, in relevant part, to mean "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  Under this definition, the term "occurrence" includes within its scope continuous exposure to a harmful condition alleged, as in the underlying action, to have been caused by the insured's breaches of contract or violations of statutory or regulatory duties.

Great American argued that the alleged "bodily injury" and "property damage" were caused by plaintiff's breaches of its bylaws and condominium declarations, and not by an accident. The policy defines "accident" to include "continuous or repeated exposure to substantially the same general harmful conditions," which is exactly what was alleged in the underlying action.

The court declared that Great American is obligated to indemnify the plaintiff for any liability imposed in the underlying action that exceeds the policy issued by Admiral Indemnity Company.

ZALMA OPINION

Fortuity is a required element of every liability insurance policy determined by the definition of "occurrence" in the policy. Since the cause of damage was found by the trial court to be a result of continuous or repeated exposure to harmful conditions, it concluded the loss was due to a fortuitous "occurrence" and Great American must pay damages that could be found against the Plaintiff Condominium.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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