The court agreed there was no coverage for payments when the insured was not legally obligated to make such payments. Elec. Motor & Constr. Co. v. Travelers Indemn. Co. of Am., 2017 U.S. Dist. LEXIS 11889 (E.D. Va. Jan. 27, 2017).
The insured, Electric Motor, contracted with the United States Navy to repair generators on ships operated by the Navy. In 2011, Electric Motor began repairs on three generators. A purchase order required Electric Motor to repair Generator 7. As part of its repair, the generator was shipped to Akard Commutator of Tennessee (ACT), one of its subcontractors, to complete independent repair work on the generators' rotors. After the repairs, ACT returned the rotors to Electric Motor for reinstallation. When the generators were installed in the vessels, each failed.
Electric Motor filed a claim with its CGL carrier, Travelers, for the costs incurred to diagnose and repair the generators. Travelers paid the claim.
Later, however, Generators 2 and 7 were repaired again, but failed testing and were not returned to service. The Navy returned Generator 7 to Electric Motor. Electric Motor felt immense pressure from the Navy to quickly diagnose and repair Generator 7. A new subcontractor disassembled Generator 7 and found that ACT's poor workmanship had caused additional damage to the Generator's rotors.
Electric Motors submitted a second claim to Travelers, seeking $125,000 to cover the costs of the second round of repairs to Generator 7. Electric Motor felt it was legally obligated to incur these costs pursuant to the purchase order. Travelers denied the claim because it was deemed a voluntary payment under the policy without the insurer consent.
Electric Motors sued and Travelers moved to dismiss because there was no allegation of any final judgment, settlement, decision, court order, administrative finding, or statutory mandate by which Electric Motor was obligated to pay the repair costs. Instead, the disputed claim was paid as a contractual duty to repair Generator 7 pursuant to the purchase order.
A contractual duty to incur the repair costs, without more, was not sufficient to bring the repair costs within the scope of the policy's insuring agreement. Electric Motor had to allege that it was "legally obligated to pay [the repair costs] as damages." To do so, the complaint had to allege some claim, order or adjudication, which directed Electric Motor to pay the repair costs as compensation for a loss or injury. The complaint, however, did not contain any allegations relating to a claim, adjudication or other coercive directive requiring Electric Motor to repair Generator 7.
Consequently, the complaint failed to state a claim upon which relief could be granted.
