Minnesota CGL: Clean Up Costs Arising From Construction Operations Barred


In Engineering & Construction Innovations Inc. v. Western National Mutual Insurance Co., an unpublished decision of the Minnesota Court of Appeals released on August 18, 2010, the court held that clean up costs arising out of the insured’s operations at the worksite were not covered by the insured’s CGL policy.   

Western National issued a commercial general-liability (CGL) policy to Engineering & Construction Innovations Inc. (ECI). ECI contracted to install below-ground, force main-access structures (FAS) to connect segments of sewer pipe installed by Frontier. To prevent excess groundwater from entering the excavations necessary for its work, ECI injected grout into the ground through tubes to form a collar around the pipes. On one occasion, ECI workers were aware that approximately 16 cubic yards of injected grout did not go into the expected area, but continued their work without determining where the injected grout actually went. Approximately two months later, while ECI was still working at the same site, it was discovered that the grout had entered the open end of one of the segments of sewer pipe. By the time it was discovered, the grout had hardened inside 120 linear feet of the pipe filling. ECI acknowledge that it had a contractual duty to remove the grout from the pipe.  The removal took two months and cost $705,000 in labor and materials.  

ECI brought a declaratory-judgment action seeking a declaration that the costs related to cleaning out the grout were covered by the CGL policy. Western National contended that the policy did not afford coverage because the incident did not cause any “property damage” and, even if it did, exclusion 2j(5) barred coverage for property damage to “[t]hat particular part of real property on which you . . . are performing operations, if the ‘property damage’ arises out of those operations.” The district court concluded that “property damage” occurred to the pipe when ECI injected the grout in an area around the pipe and the grout infiltrated the pipe and the exclusion did not apply. The Minnesota Court of Appeals disagreed and reversed.  First, it was undisputed the pipe was not physically damaged (and that there was no resulting loss of use of the pipe because the sewer line was not yet operational) as required by the policy’s “property damage” definition.  Moreover, even if the grout in the pipe constituted property damage, exclusion 2j(5) barred coverage for the clean up costs.  The district court did not cite any authority for its conclusion that this exclusion did not apply, but ECI contended that Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002), supported its position. The Court of Appeals disagreed.  The court noted that the Thommes case involved unconsented-to clearing of land adjacent to the land that the insured had contracted to clear.  Here, however, it was undisputed that the property damage occurred on the real property on which ECI had contracted to perform work and the property damage occurred during ECI’s “operation” of injecting the grout.  Thus, the policy did not afford any coverage.

This blog is for informational purposes only.  By reading it, no attorney-client relationship is formed.  The law is constantly changing and if you want legal advice, please consult an attorney licensed in your jurisdiction. © All rights reserved. 2010.

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