Application of the facts to the "your work" exclusion was the key to resolving coverage issued in Am. Home Assurance Co. v. Cat Tech L.L.C., 2011 U.S. App. LEXIS 21076 (5th Cir. Oct. 5, 2011).
Ergon Refining, Inc. hired Cat Tech L.L.C. to service a hydrotreating reactor. In January 2005, Cat Tech replaced certain parts in the reactor. After Cat Tech finished the job and left, Ergon noticed a high pressure drop in the reactor, forcing it to be shut down. Cat Tech returned in February 2005, removed, repaired and replaced the damaged parts, and loaded new parts. After completion, a second large pressure drop occurred during the reactor's start-up process. The reactor was shut down until October 2005, when Ergon hired a different contractor to perform the repair work. Additional damage to the reactor was found.
Cat Tech and Ergon went to arbitration. The arbitrators found Cat Tech was at fault and awarded Ergon $1.9 million in damages. Cat Tech sought indemnification from its insurers, American Home, under a CGL policy, and National Union, under an umbrella policy. American Home defended in the arbitration, but only paid its policy's per-occurrence limit of $1 million. National Union denied Cat Tech's claim in its entirety. The policies' "your work" exclusion barred coverage for "'property damage' to 'your work' arising out of it or any part of it . . . . "
The insurers filed suit seeking a declaratory judgment to establish that the "your work" exclusion precluded coverage. The district court granted summary judgment to the insurers based upon the "your work" exclusion.
The Fifth Circuit noted there were three categories of property damage potentially at issue. The first category encompassed property damage to the specific parts of Ergon's reactor upon which Cat Tech performed defective work. The second category was property damage to those parts of the reactor upon which Cat Tech performed non-defective work, but were nonetheless damaged. The third category encompassed other Ergon property upon which Cat Tech did not work, but was still damaged. The Fifth Circuit concluded that the "your work" exclusion only precluded coverage for damage to that portion of Ergon's property upon which Cat Tech performed repair work, defective or otherwise. It did not preclude coverage for any damage to Ergon's property that Cat Tech did not repair or service.
The district court erroneously relied upon the arbitration award in deciding damage to Ergon's reactor was limited to those components that Cat Tech serviced. The Fifth Circuit determined the arbitration award was too vague in its description of the damage to the reactor and how that damage related to the work Cat Tech performed. While the award found Cat Tech responsible for the damage, this only resolved the issue of liability between Ergon and Cat Tech, not coverage between Cat Tech and its insurers.
Accordingly, there was a disputed issue of fact as to whether the damage to the reactor was limited to the parts upon which Cat Tech worked, or whether other parts of the reactor were also damaged during Cat Tech's work in January and February 2005.
Thanks to my blogging colleague, Rebecca Copeland (www.recordonappeal), for sending this case my way.
