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An appellate court in New Jersey, affirming a trial court’s decision, on Aug. 2 ruled that a construction company could not assert a property damage claim after its excavator fell into a river, concluding that the river had not been damaged.

The Case

Diaco Construction Inc. lost an excavator in the Elizabeth River in the course of constructing concrete headwalls and outlets for stormwater runoff pursuant to its contract with the city of Elizabeth. As the appellate court explained, a Diaco employee was operating the excavator on the riverbank when he sensed it slipping into the river. The operator turned the machine and tried to drive it across the river, but the excavator got stuck three-quarters of the way across.

Although nothing leaked into the river from the wreck, the excavator was a total loss and it cost Diaco over $300,000 to remove it a week later following an oral demand by the city and the New Jersey Department of Environmental Protection.

Ohio Security Insurance Company, Diaco’s commercial general liability (“CGL”) insurance carrier, paid Diaco $134,904.87 on its first-party direct claim, which included $95,000 for loss of the excavator and $28,750 for debris removal and to test for and contain any fluids that might leak into the river.

Thereafter, Diaco submitted a third-party liability claim for the cost of removal, which Ohio declined. Diaco went to court, seeking to resolve the coverage question.

Diaco asserted, among other things, that the Elizabeth River qualified as “tangible property” under the Ohio CGL policy and that the presence of the excavator constituted “physical injury to tangible property.”

For its part, Ohio asserted that the only coverage available to Diaco was a first-party claim and that Diaco could not establish “property damage” under the policy.

The trial court agreed with Ohio that Diaco could not establish “property damage” under the Ohio policy. It rejected Diaco’s characterization of the city’s demand for removal of the excavator as a “claim” under the policy because the city had never filed suit or even issued a written demand. The trial court also rejected Diaco’s assertion that the excavator’s presence in the river constituted a trespass or created an obstruction to navigation, noting that no party had “suggested that due to the presence of the excavator, the use of the river was curtailed in any way.”

The trial court found that “the river was not detrimentally altered. Its appearance, shape, color, and dimension remained exactly the same. Once the excavator was removed, nothing was required to repair any damage or harm to the river because no damage or harm was done.”

Diaco appealed.

The Ohio Insurance Policy

The Ohio policy defined “property damage” as:

Physical injury to tangible property. . . .

The Appellate Division’s Decision

The appellate court affirmed.

In its decision, the appellate court ruled that Diaco “simply could not establish property damage under the terms of the CGL policy.”

The appellate court reasoned that, assuming the river constituted tangible property, the excavator’s temporary stalled presence in the river “inflicted no more physical injury on the river than the excavator would have inflicted on the ground had it broken down along the bank and had to be towed away.”

Because Diaco could not establish any loss of use of the river by anyone, it failed to establish that it was entitled to coverage under the CGL portion of the policy, the appellate court concluded.

The case is Diaco Construction, Inc. v. Ohio Security Ins. Co., No. A-2717-17T3 (N.J. Ct. App. Aug. 2, 2019). Attorneys involved include: Francis X. Garrity argued the cause for appellant (Garrity Graham Murphy Garofalo & Flinn, attorneys; Francis X. Garrity, of counsel; Jane G. Glass, on the briefs). John Thomas Coyne argued the cause for respondent (Mc Elroy Deutsch Mulvaney & Carpenter, LLP, attorneys; John Thomas Coyne, on the brief).

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at [email protected].