## Facts

- A Manhattan brownstone owner/manager held a primary commercial general liability policy providing $500,000 per occurrence for “bodily injury” and “property damage,” defining “bodily injury” as “bodily injury, sickness or disease.”
- The insured also carried a $10 million excess umbrella policy above the primary limits.
- During renovations, part of a ceiling collapsed in tenants’ apartment; tenants sued the owner/manager for negligence and other claims, principally seeking damages for emotional distress and also alleging property damage.
- The tenants’ pleadings and proof did not include physical injury or physical contact; the claimed harm was mental/emotional distress arising from the incident and its aftermath.
- The primary insurer defended under a reservation of rights and, over the insureds’ objection, settled the tenants’ property-damage claim for $50,000.
- Before the case went to the jury, intentional tort claims were dismissed; the jury returned a verdict for personal injuries (including emotional distress) on negligence and a small award on breach of warranty of habitability; punitive damages were set aside.
- After judgment against the insureds was affirmed on appeal, the insureds sued the insurers for a declaration of coverage and indemnification and sought recovery of attorneys’ fees.
- The lower courts held the emotional-distress award was covered as “bodily injury” and that the verdict was based on negligence within coverage.

## Issues

1. Whether “bodily injury,” defined as “bodily injury, sickness or disease,” includes purely emotional or mental distress without physical injury or contact.
2. Whether the underlying judgment was properly treated as arising from negligence within coverage rather than intentional conduct outside coverage.

## Decision

- The court affirmed the order requiring coverage under the primary policy.
- It held that, under the policy language and circumstances, mental or emotional distress alone could qualify as “bodily injury.”
- It held the underlying verdict rested on negligence (with intentional tort claims dismissed before submission) and therefore was not excluded as intentional misconduct.

## Legal Principles

- Insurance policy terms are construed according to the understanding of an average insured; ambiguities are construed against the insurer and in favor of coverage.
- Where “bodily injury” is defined to include “sickness or disease,” the definition can reasonably encompass significant emotional or mental injury even without physical impact or contact.
- An insurer seeking to limit “bodily injury” coverage to physical harm must do so with clear policy language; absent such limitation, a negligence-based emotional-distress award may fall within coverage.
- When the underlying record shows dismissal of intentional tort theories and a verdict on negligence, the insurer cannot recast the judgment as intentional conduct to avoid indemnity.

## Conclusion

The court held that substantial emotional distress caused by the insured’s negligence may constitute covered “bodily injury” under a CGL policy defining bodily injury as “bodily injury, sickness or disease,” and it enforced indemnity because the underlying judgment was based on negligence rather than intentional torts.


Lavanant v. Gen. Accident Ins. Co. of Am., 79 N.Y.2d 623, 595 N.E.2d 819 (N.Y. 1992)