As every lawyer knows, Aristotle distinguished four types of explanation, or “cause,” for natural phenomena. The “final cause” is “that for the sake of which” a thing is what it is. In nature, the final cause can be the end of a series of developmental changes that typical members of a species undergo: the chicken is the final cause of the egg, the oak the final cause of the acorn. This blog recently discussed a case in which the Supreme Court of South Dakota invoked the final cause of a pile of windmill parts, when it held (without citing Aristotle) that they constituted a “windmill” for purposes of an exclusion in a property insurance policy. But New York is not South Dakota, and the U.S. Court of Appeals for the Second Circuit has now held that a final cause is not the thing in itself. Specifically, for purposes of an exclusion in a CGL policy, the court held that an “apartment” does not become a “condominium” until it has been sold.
Ment Bros. Iron Works was a welding subcontractor for the construction of a residential building in lower Manhattan, and it allegedly damaged windows in the building’s penthouse with welding sparks. The building was planned and marketed by its developer as a residential condominium, and offering literature had already been filed with the New York Attorney General. Ment’s commercial general liability policy contained an exclusion for property damage “arising out of the construction of ‘residential properties,’” and the policy stated that “residential properties” included “condominiums.” However, the exclusion contained an exception for “apartments.” Ment’s insurer asserted that the damaged penthouse was a “condominium,” for which coverage was excluded; Ment maintained it was an “apartment, and that the insurer was on the hook.
The district court ruled that the penthouse was a condominium and granted summary judgment to the insurer, but the Second Circuit reversed, in Ment Bros. Iron Works Co. v. Interstate Fire & Cas. Co., No. 11-2596 (2d Cir. Dec. 11, 2012). The court noted that the policy defined the relevant terms in the following ways:
“Apartment” means a unit of residential real property in a multi-unit residential building or project where all units are owned by and titled to a single person or entity.”
“Condominium . . .” means a unit of residential real property in a multi-unit residential building or project where each unit is separately owned and titled.”
The policy further stated:
In the event any “apartment” . . . is convertedto a “condominium, . . . ”, thencoverage under this policy is excluded for any claims for . . . “property damage” . . . which occur after the conversionof the “apartment” into a “condominium.”
When Ment allegedly blowtorched the penthouse, none of the units in the building had been sold, and so the building was still a “multi-unit residential building . . . where all units [were] owned by . . . a single . . . entity.” On that basis, the Second Circuit ruled in favor of the welder.
But the court also went further, noting that, under New York law, “a building does not become a condominium until a condominium declaration is filed.” The owner did not file such a declaration until after the building had been completed, and the court stated that, without such a declaration, “a condominium’s ‘existence is not recognized at law.’”
In other words, the presence of an egg does not necessarily entail the existence of a chicken, and so the presence of an acorn does not trigger an exclusion for oaks.