The court found there was no coverage obligations for the insured's defective product. Titanium Indus., Inc. v. Federal. Ins. Co., 2014 WL 4428324 (N.J. Super. Ct. App. Div. Sept. 10, 2014).

   The insured, Titanium Industries, supplied titanium bar materials to Biomet Manufacturing Corporation. Biomet manufactured orthopedic implants and devises. The titanium was used to manufacture screws to incorporate into Biomet's products. 

   Biomet notified the insured of a potential defect in some of the titanium material, described as "alloy segregation," i.e., the failure of alloys in a metal to completely melt, causing the alloy to separate and undermine the strength of the finished product. The insured and Biomet negotiated a settlement, which included lost profits and the cost of returning the titanium. 

   The insured then requested indemnity from Federal Insurance. The insured contended that the defects in the titanium existed when it was shipped to the insured from its supplier. Federal denied coverage because the titanium was already defective when Biomet received it, and the titanium was not added to any product that then caused property damage. Federal argued there was no "occurrence" because the titanium did not damage other property. The trial court granted summary judgment for Federal.

   The Appellate Division affirmed. Under New Jersey law, contract law provided a remedy where the only damage caused by a defective product was to the product itself. Here, the raw titanium was made into screws. The titanium was otherwise unaltered and was not appended to other property that was, itself, damaged. Biomet's claims were for the breach of the insured's warranties regarding the intended use of the titanium. The risk of any replacement or repair of the insured's faulty goods was a risk assumed by the insured as a cost of doing business.