The general contractor was not entitled to a defense based upon an exclusion for construction management fees. Houston Cas. Co. v. Cavan Corp .of NY, Inc., 2018 N.Y. App. Div. LEXIS 1138 (N.Y. App. Div. Feb. 20, 2018).
Cavan entered a Construction Management Agreement ("CMA") under which it would act as construction manager for a building project. The CMA provided that Cavan would receive a fixed fee of $600,000, in addition to a payment of $1,700,000 as reimbursement "for all reasonable and customary staffing and overhead costs incurred."
During construction, an individual was injured and sued Cavan and others. Cavan tendered to Houston under its CGL policy. Although the policy provided coverage for "bodily injury" arising out of Cavan's work, there was an endorsement entitled "Exclusion - Construction Management for a Fee." The endorsement barred coverage for losses "arising out of construction management, regardless of whether such operations are conducted by you or on your behalf." The endorsement defined "construction management" to mean "the planning, coordinating, supervising or controlling or construction activities while being compensated on a fee basis by an owner or developer."
Houston filed for a declaratory judgment that it had no duty to defend based upon the endorsement. The trial court denied Houston's motion for summary judgment, finding that there were triable issues as to whether Cavan was functioning as a construction manager and fell within the exclusion.
The appellate division reversed. The policy excluded from coverage operations for which Cavan was" being compensated for on a fee basis." Under the CMA, Cavan was compensated for its work by a flat fee of $600,000, plus reimbursement for overhead and staff expenses, rather than by progress payments. This was sufficient to bring its operations within the scope of the exclusion.