On July 18, 1994, the Las Vegas Hilton marquee sign collapsed to the ground. It was once billed as the world’s tallest sign and cost more than $4,000,000.00.[i] Litigation followed its collapse, exploring the issues of coverage and summary judgment.[ii]
In September 1993, Young Lighting and Sign contracted with the Las Vegas Hilton Corporation to erect a 362-foot tall marquee sign. Young sub-contracted with Uriah, another company, to erect steel support for the sign. A CGL insurance policy, effective April 29, 1993 to April 29, 1994, insured Uriah, which provided:
The underwriters will pay on behalf of the Assured all sums which the Assured shall become legally obligated to pay as damages because of A. Bodily Injury; or B. Property Damage, to which this insurance applies, caused by an occurrence, and the Underwriter shall have the right and duty to defend any suit against the Assured seeking damages on account of such bodily injury or property damage, even if the allegations are groundless….
The sign was completed in December 1993. On April 29, 1994, the underlying policy expired, and Uriah purchased a new policy from a new carrier. Three months into the new policy, the sign collapsed during a windstorm.
Young Lighting and the Las Vegas Hilton sued Uriah for negligence, breach of contract, and breach of warranty. Uriah tendered to United National Insurance, the first carrier, for coverage, but it refused because the collapse occurred after the expiration of the first policy. The second carrier, Frontier Insurance, did defend and indemnify Uriah. It settled the lawsuits for $250,000 and incurred legal expenses of $696,667.
Frontier Insurance, Uriah’s second carrier, then sued United National Insurance in subrogation for indemnification of defense and settlement expenses. The trial court granted partial summary judgment in favor of Frontier and Uriah, holding United National Insurance did breach the duty to defend the litigation. The Court then granted an award of $431,070 in damages for defense and settlement expenses. The first carrier, United National Insurance, appealed.
An insurance policy creates two contractual duties: the duty to indemnify and the duty to defend.[iii] “The duty to indemnify arises when an insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy.”[iv] On the other hand, “[a]n insurer … bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.”
The CGL policy defined the word “occurrence” as “an accident, including continuous or repeated exposure to conditions, which result in… property damage.” The plain meaning is, “an accident or exposure to conditions that result in property damage.” Property damage was defined in the CGL policy as “(1) physical injury to or destruction of tangible property… or (2) loss of use of tangible property.” Thus, the tangible, physical injury must occur during the CGL policy period to trigger coverage.
Accordingly, the Nevada Supreme Court concluded, based on the Complaint, the physical loss of the sign occurred on July 8, 1994, after the United National policy expired. There was no coverage for the loss and no duty to indemnify either Frontier or Uriah for the cost of settlement.
As for the duty to defend, “[a]n insurer … bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.”vi Once the duty to defend arises, “this duty continues throughout the course of the litigation.”vii If there is any doubt about whether the duty to defend arises, this doubt must be resolved in favor of the insured.viii The purpose behind construing the duty to defend so broadly is to prevent an insurer from evading its obligation to provide a defense for an insured without investigating the facts behind a complaint.ix However, “the duty to defend is not absolute.” Courts may determine whether an insurer owes a duty to defend by comparing the allegations of the complaint with the terms of the policy.
The Nevada Supreme Court went on to conclude the complaint clearly alleged Uriah was negligent in the erection of the sign, including improper welding, and modifications of the bolts connecting the various steel components of the sign.
The Supreme Court of Illinois recently stated that property suffers physical, tangible injury when it “is altered in appearance, shape, color or in other material dimension.” It follows that “to the average mind, tangible property does not experience ‘physical’ injury if that property suffers intangible damage.” We view improper welding or general negligent acts as intangible, economic injuries and not the type of physical, tangible injury or destruction to property that a reasonable person would contemplate as covered under the policy. The complaints did not allege that any physical, tangible injury to the sign occurred during the United and Generali CGL insurance policy period—April 29, 1993, through April 29, 1994. Rather, the complaints only alleged that the sign suffered physical, tangible injury when it collapsed on July 18, 1994, nearly three months after the United and Generali policy expired. Therefore, we conclude that there was no potential, or possible, coverage under the CGL insurance policy, and United and Generali owed no duty to defend Uriah.[v]
Accordingly, in Nevada, a claim for negligence arising from intangible, economic injury may not be covered under a CGL policy of insurance, as it may not be an “occurrence” as contemplated under the policy. How can one know the difference?
To be covered, the allegations in the Complaint must allege a specific event or occurrence caused physical injury to insured property during the policy period. Where the Complaint in the United National Insurance Co., v Frontier Insurance Co., supra, alleged the 362-foot sign in front of the Hilton collapsed after the policy period ended because of poor workmanship, as a matter of Nevada law, the damages were not covered. In that case, as framed by the Complaint, the collapse was not due to any particular event but rather the result of intangible injury (i.e. poor workmanship) which, allegedly, over a period of time, resulted in the collapse. As such, United National Insurance, the Hilton’s insurance carrier, had no duty to defend or indemnify Hilton, and the collapse was not covered.
[ii] United National Insurance Co. v. Frontier Insurance Co., 99 P.3d 1153 (2004).
[iii] Allstate Ins. Co. v. Miller, 212 P.3d 318, 324 (2009).
[iv] United Nat’l Ins. Co., supra at p. 1157.
[v] Id. at p. 1159.
vi Gray v. Zurich Insurance Company, 419 P.2d 168, 177 (1966).
vii Home Sav. Ass’n v. Aetna Cas. & Surety, 854 P.2d 851, 855 (1993).
viii Aetna Cas. & Sur. Co. v. Centennial Ins. Co., 838 F.2d 346, 350 (9th Cir.1988).
ix Hecla Min. Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo.1991).
x Aetna Cas. & Sur. Co., supra at p. 350.