The Kansas Court of Appeals determined that the insurer must defend claims of negligent misrepresentation against its insured. Central Power Sys. & Servs. v. Universal Underwriters Ins. Co., 2014 Kan. App. LEXIS 9 (Kan. Ct. App. Feb. 21, 2014).
Central Power contracted to furnish Eagle Well with 10 oil-rig engines and 10 oil-rig transmissions. Eagle Well alleged that Central Power informed them that the engines and transmissions would be operational without any additional components. As is turned out, the engines could not operate without a wiring harness. Eagle Well had to hire a third party to make wiring harnesses that would meet their needs and to install the wiring harnesses.
Eagle Wells sued Central Power, alleging damages in the form of lost profits for the time it took to make the engines independently operational. Further, damages were incurred due to money needed for the costs of purchasing the wiring harnesses from the third party and attaching the harnesses to the engines. Claims asserted against Central Power included breach of contract, negligence and negligent misrepresentation.
Central Power tendered its defense to Zurich, who refused to defend or to indemnify. Central Power sued Zurich. The trial court concluded that Eagle Well's negligent-misrepresentation and negligence claims were covered by the policy.
The court of appeals affirmed. The loss of use of the engines qualified as an 'injury" under the policy. Zurich contended that Eagle Well suffered only economic losses, including lost profits from the inability to use the oil-well rights but no damage to the rigs themselves. Missouri law applied and purely economic damages resulting from the loss of use of tangible property had been found to constitute an injury.
Further, there was an "occurrence" under the policy. The underlying allegations included negligence in the work performed and negligent misrepresentation regarding the work to be done. Missouri courts found that negligent misrepresentation claims were occurrences under CGL policies. Therefore, Zurich had a duty to defend.
