Insurance Law Hawaii

Court Denies Insurers' Motion for Summary Judgment on Occurrence and Property Damage

    The court rejected the insurers' argument that there was no occurrence or property damage. Ceme-Tube LLC v. Chroma Color Corp., 2024 U.S. Dist. LEXIS 134699 (W.D. Wis. July 30, 2024). 

    The insurers argued on summary judgment that their respective policies did not provide coverage for Ceme-Tube LLC's claims against Chroma Color. The court found that construing the policies as an insured like Chroma Color would, a reasonable jury could find Ceme-Tube's claims were "property damage" was caused by an "occurrence." First, a reasonable jury could find that there was an occurrence based on Ceme-Tube's allegations. Faulty workmanship alone was not an "occurrence," but faulty workmanship could cause an occurrence under Wisconsin law. The alleged faulty workmanship was Chroma Conor's adding insufficient UV protectant to its colorant, then selling it to Ceme-Tube. Although Chroma Color providing insufficient UV protectant to Ceme-Tube was not itself an occurrence, it allegedly caused one. The tubes, which allegedly lacked adequate UV protection, suffered repeated exposure to harmful UV rays that resulted in an accident, the unexpected premature degradation of the tubes. 

    Second, a reasonable jury could conclude that Ceme-Tube's complaint and evidence alleged "property damage." Come-Tube alleged that: (a) it received "significant complaints regarding the degradation of its products"; and (b) it may need to repair and replace many tubes that it sold, which at least implied the tubes suffered property damage.

    Third, while the insurers agreed that there was no causal nexus between the "occurrence" and "property damage," a reasonable jury could infer a causal nexus between the alleged insufficient UV protectant and tube degradation. 

    The court went on to find none of the exclusions raised by the insurers were applicable. The "your product" exclusion did not apply when Ceme-Tube alleged that the tubes it manufactured and sold deteriorated prematurely from UV light exposure due to a defect in Chrome Color's product used in production. The "your work" exclusion did not apply for the same reason. Ceme-Tube asserted that its manufactured tubes were damaged not as the result of Chroma Color's work or operations, but by its sale of a defective product.

    The "impaired property" exclusion applied to "property damage to 'impaired property' or property that has not been physically injured, arising out of: A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work.'" The impaired property exclusion also required that the impaired property could be restored touse by repair, replacement, adjustment or removal of "your product' or "your work" - here the colorant. Therefore, the "impaired property" exclusion addressed situations where a defective product, after being incorporated into the property of another, must be replaced or removed at great expense, thereby causing loss of use of the property. 

    Accordingly, the insurers' motions for summary judgment were denied as to whether there was an occurrence and property damage.

    

Insurer's Motion for Summary Judgment on Faulty Workmanship Denied

    The court found that the insurer failed to meet its burden on summary judgment seeking a judgment that faulty workmanship precluded coverge. Auto-Owners Ins., Co. v. AAA Discount Homes, LLC, 2024 U.S. Dist. LEXIS 48463 (S.D. Ga. March 19, 2024).

    Heather Way sued AAA Discount Homes, LLC and Delta Transport & Management, Inc. for manufacturing defects found in a manufactured home which was delivered and assembled by Delta. Way had contracted with AAA for the construction, delivery, assembly, setting, tie down with brick underpinning steps and construction of front and back porches. AAA, assisted by Delta, delivered the home and assembled it, including raising the roof, over the course of a few days. 

    Subsequently, Way discovered extensive water damage and mold in the home. Way alleged that AAA and its subcontractors made careless, unsafe, and unsuccessful attempts at removing the old and repairing the water damage. The presence of chemicals in the home made it uninhabitable. Way alleged the home was improperly assembled by Delta and its negligence resulted in damages.

    Way sued AAA and Delta. Delta tendered the defense to Auto-Owners, but the tender was denied. Auto-Owners sued Delta for declaratory judgment.

    Delta's role was to transport the two halves of the home and assemble it. Auto-Owners had not shown that the home was defective before Delta assembled it, nor had Auto-Owners shown that the resulting water damage was merely a repair or replacement of Delta's assembly work. Without more, the court could not find the resulting damage was not "property damage" under the policy. 

    Auto-Owners also asserted various business risk exclusions barred coverage. First the policy precluded coverage of "property damage" to "personal property in the care, custody or control of the insured." There was a question of fact whether Delta had complete dominion over the home. The court declined to find that delivering and assembling the home gave Delta exclusive control over it such that coverage ws denied under the "care, custody, or control" of the policy.

    The policy also excluded coverage of "property damage" to "your product" arising out of it or any part of it."Your product" meant "any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by . . . You." Auto-Owners contended that Delta "handled" the home. Delta, however, did not construct or sell the home. The words appearing alongside "handled" all required significant control over the production of the home. If handled was given a meaning related to the words in the list, handled could be interpreted to require more than just delivery and assembly. Because the word "handled" could be interpreted under the language of the policy as requiring more than simply delivering and assembling the home, the court found the term's meaning ambiguous.

    The policy excluded "property damage" to "your work" raising out of it or any part of it." It was unclear whether the damages claimed were the part of the home Delta worked to assemble or whether the damages were to other property damaged by the faulty assembly. Thus, Auto-Owners had not carried its burden to show this exclusion applied.

    Finally, the policy precluded coverage of '"property damage" to impaired property or property that had not been physically injured, arising out of: (1) a defect, deficiency, inadequacy, or dangerous condition in "your product" or "your work." The scope of "your work" was debated by the parties. Auto-Owners had not shown the damages sought were to address the defective workmanship rather than to redress damages to other parts of the home. Because Way alleged the mold caused by water damage - and not the assembly of the home - made the home uninhabitable, Auto-Owners had not show the home constituted "impaired property."

    Auto-Owners' motion for summary judgment was denied.

Insurer's Declaratory Relief Action on Duty to Indemnify Dismissed

    The court granted the insured's motion to dismiss the insurer's action for a declaratory judgment on the issue of indemnity when the underlying action was still ongoing. Utica Mut. Ins. Co. v. Crystal Curtain Wall Sys. Corp., NYLJ LEXIS 3255 (N.Y. Sup. Ct. Dec. 1, 2023).

    Crystal was a subcontractor to design and install window and curtain systems as well as terrace doors and a glass parapet in the construction of two mixed use residential and commercial buildings. After unit owners took possession, a significant rainstorm allowed water infiltration, causing property damage in the building including moldy conditions. The owners sued, asserting claims against Crystal for the cost of repair or replacement of the allegedly defective curtain wall, damage to personal property, diminution in value of the units, and delay damages consisting of increasing interest and carrying costs that allegedly resulted from delays in completion of the construction work. 

    Crystal tendered to Utica, who agreed to defend. Utica, however, filed for a declaratory judgment seeking to define the parameters of its duty to indemnify. Crystal moved to dismiss on the grounds that Utica's indemnification obligations were not yet ripe for determination. Utica insisted that its request for a declaration that "no coverage is available for the cost of repair or replacement of the curtain wall." 

    The court noted that whether the damage to the curtain wall necessitating its repair or replacement stemmed from defective design or installation of the wall itself (by Crystal or its subcontractors), or instead from defective work on other components of the building carried out by other parties. Therefore, Utica's request was not justiciable. 

    Utica also argued the "your product" and "your work" exclusions barred coverage. The "your product" exclusion barred coverage for "property damage to 'your product' arising out of it or a part of it." The record did not (yet) establish whether the damage to the curtain wall requiring its repair or replacement "arose out of it", i.e., from defects in the wall itself or arose instead from defects in other components of the building.

    The "your work" exclusion barred coverage for "'property damage' to 'your work' arising out of it or any part of it" but not if the work was performed by a subcontractor. Again, it was not yet clear how the damage to the curtain wall arose, or what part of the work on the curtain wall was performed by Crystal itself, and what part by one or more subcontractors. 

    Utica's declaratory judgment claims were therefore unripe and not justiciable at this time. Utica's cross-motion for partial summary judgment on its curtain-wall claim was denied and Crystal's motion to dismiss was granted without prejudice.

    Crystal also moved for reimbursement of its reasonable attorney fees incurred in defending the declaratory judgment action. Utica's declaratory judgment action caste Crystal in a defensive posture. There was no New York authority on awarding fees where the insurer defended, but challenged its duty to indemnify. The court concluded that a policyholder was entitled to attorney fees when it prevailed in the defense of an action brought by an insurer to challenge only the insurer's duty to indemnify. 

    

Illinois Supreme Court Finds Construction Defect Claim Triggers Initial Grant of Coverage

    The Illinois Supreme Court found that the underlying allegations addressing construction defects were sufficient to establish "property damage" caused by an "occurrence."Acuity v. M/I Homes of Chicago, LLC, 2023 Ill. LEXIS 1019 (Ill. Nov. 30, 2023).

    M/I Homes was the general contractor for a residential townhome development. The Owners' Association sued for breach of conract and breach of the implied warranty of habitability against M/I Homes. The complaint alleged that M/I Homes' subcontractors caused construction defects by using defective materials, conducting faulty workmanship and failing to comply with applicable building codes. The defects included leakage and uncontrolled water with moisture in locations in the buildings where it was not intended or expected. The Association further alleged that M/I Homes did not intend to cause the construction defects nor did it expect or intend the resulting property damage, such as damage to other building materials. The complaint further alleged that M/I Homes did not perform any of the construction work and that the subconractors performed all the work on its behalf.    

    M/I Homes demanded a defense from Acuity as the additional insured on a policy issued to one of the subcontractors. Acuity denied a defense to M/I Homes as an additional insured and filed a declartory judgment action against M/I Homes and the Association. Acuity alleged the underlying complaint failed to allege any "property damage" caused by an "occurrence." 

    Acuity and M/I Homes filed cross-motions for summary judgment. The circuit court granted summary judgment to Acuity. It found that property damage resulting from faulty work was not an "occurrence" because it was the natural and ordinary consequence of the construction project and not an accident as required by the policy. The appellate court reversed, finding that the complaint alleged that there was damage to "other property" and consequently no potential for coverage.

    The Supreme Court found that the underlying complaint, in the light most favorable to the Association, included allegations that the buyers of the complete townhomes suffered water damage to the interior of units because of leaks and moisture damage that arose from the subcontractors' faulty exterior work and defective materials. Under the language of the policy, the resulting water damage to the interior of the completed units plainly constituted physical injury to tangible property. Therefore, the allegations sufficiently sought recovery for "property damage" as that term was defined in the initial grant of coverage under the policy.

    The court next turned to "occurrence." The court had never defined the term "accident" in the context of construction defects that resulted in property damage. Considering various definitions, the court found that the term "accident" reasonably encompassed the unintended and unexpected harm caused by negligent conduct. The allegations indicated that inadvertent construction defects accidentally caused property damage to the completed townhouses. 

    Therefore, property damage that resulted from inadvertent faulty work could be caused by an "accident" and constitute an "occurrence" for purposes of the initial grant of coverage under the insuring agreement. The premise that there could be no "property damage" caused by an "occurrence" under the policy unless the underlying complaint alleged property damage to something beyond the townhouse construction project was erroneous and was not grounded in the language of the initial grant of coverage in the insuring agreement. 

    Next, the exclusions had to be considered. Neither the parties, the trial court, nor the appellate court considered exclusions (j) or (l). To ultimately resolve whether Acuity had a duty to defend, the court remanded to the trial court for further consideration. The parties would then have the opportunity to address whether, comparing the underlying allegations to the language of the polciy, the exclusions in the policy applied to preclude a duty to defend. 

 

Insurer's Motion for Judgment on the Pleadings for Construction Defect Claim Rejected

    The magistrate judge recommended that the insurer's motion for judgment on the pleadings be denied in a case involving coverage for the insured subcontractor's alleged faulty workmanship. Evanston Ins. Co. v. Sonny Glasbrenner, Inc., 2023 U.S. Dist. LEXIS 190019 (M.D. Fla. Oct. 20, 2023). 

    Cone & Graham (C&G), the general contractor, subcontracted with Sonny Glasbrenner, Inc. (SGI) to work on the project. The project involved the rehabilitation of a bridge due to deterioration of the existing concrete bridge deck by adding additional cross bracing to further stiffen the steel girders and using special lightweight concrete. C&G contracted SGH to demolish the existing concrete bridge deck. SGI completed the work.

    Thereafter, C&G made a demand to SGI for alleged damaged caused by SGI's work. C&G alleged that SGI was negligent in performing the demolition work, causing substantial damage to the existing bridge girders. C&G sued SGI.

    SGI was insured under a CGL policy issued by Everest Denali Insurance Company. SGI also had an excess policy from Evanston Insurance Company. Everest agreed to a settlement with C&G for $1,000,000 per occurrence policy limit while reserving rights against Evanston. Evanston denied coverage based on the Contractor's Services Exclusion in its policy and exclusions to coverage j (5) and j (6) in the Everest policy.    

    Evanston filed suit against SGI and C&B seeking a declaratory judgment that it had no duty to defend or indemnify.  The suit concerned whether the underlying action properly alleged "property damage" as defined in the policies and whether the exclusions barred coverage.

    Evanston implied that because the underlying action did not allege "property damage" as defined in the Everest policy, there was no coverage under the Everest policy and thus, no coverage under the Evanston policy. The pleadings reflected that SGI was contracted to demolish and remove the existing concrete bridge deck and the scope of work did not include any work on the existing beams, girders, spliced plates, or structural bolts, all of which were to be left untouched. According to the allegations, SGI's negligence led to physical injury to otherwise non-defective property. There were no allegations of damage to the concrete bridge which SGI had been contracted to demolish. Rather, SGI allegedly caused property damage to areas outside its intended scope. Thus, although there was no coverage for faulty workmanship, there could be coverage if the faulty workmanship damaged some otherwise non-defective component of the project. 

    Evanston next argued that the Everest policy excluded coverage for "property damage" to "[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations." Because this exclusion applied, Evanston argued its policy was not triggered.

    To the extent that Evanston implied that property damage that occurred while the insured was performing its contractual duties was excluded, this was not a reasonable interpretation of the exclusion. Under this interpretation, all property damage that occurred during the insured's work would be excluded, which would include property damage to adjacent areas. 

    The contract between SGI and C&G referenced demolishing the concrete bridge deck up to the girders. The contract did contemplate any actual work on the girders and nothing in the pleadings suggested that working on the girders or beams was contemplated. Further, the contract stated that SGI would be responsible for damage to beams, which supported the fact that SGI was not supposed to work on the beams. 

    Evanston then turned to the Damage to Property exclusion it its policy, arguing it was not limited to SGI's scope of work or damage arising from SGI's operations. Rather, the Evanston policy precluded coverage for "property damage" to real property on which any insured was performing work regardless of th cause.

    C&G argued that the scope of the Damage to Property exclusion was the same scope of exclusions j (5) and j (6) in the context that coverage was excluded for "property damage" to the "particular part of real property' on which the insured's 'work' is being performed" (Damage to Property Exclusion) or on which the insured was performing "operations" (Exclusion j (5)). Evanston did not rely on any authority in support of its argument that its Damage to Property exclusion was in some way broader than j (5) and j (6). The exclusion to property damage to "[t]hat particular part of real property on which work is being performed by or for any issued" did not apply to the property damage to the beams and girders, spliced plates, and structural bolts because according to the allegations, SGI was performing work on the bridge deck, not the entire bridge. 

    Therefore, it was recommended that Evanston's motion for judgment on the pleadings be denied.

    

Insurer Has Duty to Defend Faulty Workmanship Claim

    The magistrate judge recommended a determination that the insurer owed a defense to the subcontractor sued for faulty workmanship. Hanover Lloyds Ins Co. v. Donegal Mut. Ins. Co., 2023 U.S. Dist. LEXIS 180877 (W.D. Texas Oct. 5, 2023). 

    Poe Investments, Ltd. entered into  an agreement with Jordan Foster Construction, LLC for construction of an auto sales and service facility ("Facility"). Jordan hired multiple subcontractors, including Texas Electrical Contractors, LLC ("TEC").  Subsequently, Poe sold the Facility to 6330 Montana, LLC ("Montana").

    Montana filed suit against Jordan for breach of express warranties, breach of contract, and negligence. Jordon filed a third-party complaint against its subcontractors, including TEC. Jordan alleged that TEC provided "defective and negligent construction work" while carrying out the provision and installation of electrical and fire alarm systems at the Facility. 

    TEC notified its three commercial general liability carriers. Hanover and United Fire & Casualty Company defended TEC. The third carrier, Mountain States Insurance Group ("Mountain"), declined to defend. Mediation took place in the underlying case, and Hanover and Untied Fire paid $100,000 to resolve the claims against TEC. Mountain was invited to attend the mediation but declined.

    Hanover and United Fire sued Mountain, seeking contribution for TEC's defense costs. Cross-motions for summary judgment were filed. 

    Mountain argued there was no "occurrence" during its policy period because all of the damage had already occurred by the time of the initiation of its policy. Plaintiffs argued that Mountain's policy did not require an "occurrence" during the policy period but rather just property damage during the policy period. The court agreed that allegations of property damage caused by TEC's work, such as broken lighting fixtures and lights failing, could be construed to alleged damage potentially occurring during the policy period of at least one of Mountain's policies. Further, property damage alleged to be the result of TEC's negligent behavior, but not foreseen or expected to cause damage, meant there was an occurrence. Mountain's duty to defend was therefore triggered. 

    Mountain argued that the "impaired" property exclusion barred coverage. The provision excluded coverage for damage to third-party property that incorporated the insured's product when the third-party property was functional upon repairing or replacing the insured's product. It also excluded coverage for damages to property, or for the loss of its use, if the property was not physically injured and the damages or loss of use arose out of the insured's defective product. If the property was damaged and could not be fixed simply by repair or replacement of the defective property, then it was not "impaired property."

    Here, the exclusion did not apply because Mountain had not asserted that repairing or replacing TEC's work would restore the rest of the property to use. The Facility could not be considered either impaired property or property that had not been physically injured. 

    The court found that Mountain was liable for one-third of the costs of TEC's defense. Plaintiffs motion for summary judgment on indemnity was denied, however, because there were genuine issues of material fact regarding what work TEC was responsible for, what property damage it may have caused, and when such damage, if any, occurred. 

No Coverage for Construction Defect Claim Only Impacting Insured's Work

    In a coverage dispute between two insurers over a claim for damages caused by faulty workmanship, the court found there was no right to equitable contribution or indemnity. Travelers Prop. Cas. Co. of Am. v. Mallcraft, Inc., 2023 Cal. Super. LEXIS 67568 (Cal. Super. Ct. Sept. 15, 2023).

    Mallcraft was the general contractor for a building project and was sued for construction defects. Travelers was an additional insured under a policy issued to a subcontractor, KitCor. Travelers defended Mallcraft in an arbitration. Travelers sought equitable contribution and equitable indemnity from Hartford, Mallcraft's insurer. 

    Mallcraft and Travelers stiulated to a judgment agianst Mallcraft for all costs Travelers incurred in the arbitration. Travelers' insured, KitCor, was not implicated in the construction defect claims against Mallcraft. The judgment set forth findings, including the fact that the underlying plaintiff never made any claim that KitCor perfomred work on the project or casued property damage.

    Hartford demonstrated that it had no duty to defend Mallcraft in the arbitration. Based upon the undisputed facts, exclusions in Hartfords policy barred coverage. Hartford demonstrated that the claims against Mallcraft involved repair and replacement of Mallcraft's defective HVAC work. California cases held that coverage did nto exist where the only property damage was the defective construction, and damage to other property had not occurred. 

    Therefore Travelers' claims for equitable contribution and reimbursement failed as a matter of law.   

Insurer Must Defend General Contractor

    Interpreting Massachusetts law, the federal district court determined consequential damage resulting from the insured's faulty work triggered a duty to defend. Capitol Spec. Ins. Corp. v. Dello Russo Enter. LLC, 2023 U.S. Dist. LEXIS 11627 (D. Mass. Jan. 24, 2023). 

    Peta-Gay and Michael Print sued the insured, Dello Russo, who they hired as the general contractor for extensive remodelling and renovation of their building. During the demolition work, certain structural load-bearing walls were removed, including a portion of an exterior bricked masonry wall. Shoring of other parts of the building was inadequate and removal of the masonry wall reduced the structural integrity of the building. Cracks began to appear in the remaining portion of the masonry wall and increased over the next few days. Soon thereafter, the City of Boston determined the building was dangerous and that salvage of the undamaged portions was not feasible. Therefore, the building was demolished.

    Certain Underwriters at Lloyd's, London, filed suit against Dello Russo as subrogee of the Prinns. Dello Russo tendered the complaint to its insurer, Capitol Specialty Insurance Corporation, who defended under a reservation of rights,. Capitol then filed a suit seeking a declaratory judgment that it had no duty to defend or to indemnify. The parties cross-claimed for summary judgment.

    Under Massachusetts law, faulty workmanship was not an accidental occurrence. Coverage was possible, however, when faulty workmanship caused an accident. Here, the home-improvement contract stated that Dello Russo was not hired to demolish the entire building. Therefore, the underlying complaint did not allege that an improperly performed demolition was the accident. Instead, the underlying complaint alleged that as a result of Dello Russo's faulty workmanship during renovations, the building partially collapsed, requiring the demolition of the remaining structure. Therefore, the claims against Dello Russo alleged "property damage" caused by an "occurrence."

    Capitol argued that exclusions (j)(5) and (j)(6) were applicable. These provisions excluded coverage for claims alleging property damage to "[t]hat particular part of real property on which you  . . . are performing operations, if the 'property damage' arises out of those operations," or "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Capitol contended that as the general contractor, Dello Russo had control over the entire premises, and thus that "particular part" of property meant the entire project.

    The court noted that Dello Russo was not hired to construct, renovate or demolish an entire building. He was required to provide "demo shoring equipment," but not responsible for demolishing or removing any of the building's load-bearing walls. Nor was Dello Russo responsible for demolishing the building's exterior, or any other way performing work relating to the building's exterior walls, windows, foundation, or roof. Rather, Dello Russo's tasks included removing all non-load-bearing walls, and demolishing the building's entire interior residential space. In other works, Dello Russo was obligated to work only a "particular part" of the building: its interior. 

    Therefore, Capitol had a duty to defend. Capitol's motion in regards to the duty to indemnify was premature because the underlying action had not determined liability or adjudicated factual disputes. 

 

Defense Owed to Insured Subcontractor, but not to Additional Insured

    Affirming the district court, the Eleventh Circuit agreed that the insured subcontractor was entitled to a defense against claims of faulty workmanship, but no defense was owed to the additional insured subcontractor. Cincinnati Spec. Underwriters Ins. Co. v. KNS Group, LLC, 2022 U.S. App. LEXIS 27949 (11th Cir. Oct. 6. 2022). 

    The general contractor on a project to build a casino and hotel hired GM&P Consulting and Glazing Contractors, Inc. (GM&P) to provide exterior glazing for the building. GM&P enlisted subcontractor KNS to assist it by glazing glass and installing window walls. KNS agreed to provide commercial general liability and other types of insurance, and to indemnify GM&P for liability for damages caused by any of its acts or omissions. KNS acquired a policy from Cincinnati. 

    The casino filed suit against the general contractor and subcontractors, alleging that GM&P installed defective "Glass Facade" and improperly installed windows. GM&P filed a Hird-party complaint against KNS due to KNS's alleged defective construction of the casino.

    Cincinnati filed this coverage lawsuit seeking a declaratory judgment that it had no duty to defend and no duty to indemnify KNS or GM&P in the underlying suit. Cross-motions for summary judgment were filed and the district court ruled that Cincinnati had a duty to defend KNS, but no duty to defend or indemnify GM&P. GM&P appealed and Cincinnati filed a cross-appeal on the district court's determination that it had a duty to defend KNS.

    The Eleventh Circuit first determined there was no duty to defend the additional insured, GM&P. The policy limited GM&P's coverage to "property damage" caused, in whole or in part, by KNS or KNS's agents. The underlying complaint alleged that GM&P was negligent in its furnishing of materials and installation of the Glass Facade. It alleged no negligence by KNS nor any of its agents. Without more, Cincinnati had no duty to defend or indemnify GM&P. 

    The district court's declaration that Cincinnati must defend KNS was all affirmed. The underlying complaint alleged that the Glass Faced supplied and installed by GM&P was "fraught with systemic defects, including loose gaskets between window panels, damaged sealants and panel frame, and misaligned window wall panels creating the risk of property damage." Further, it was alleged that another defendant supplied the glass panels installed by GM&P, which suggested that GM&P's faulty installation could have damaged a separate component of the property - the panels. Thus, when the pleadings were read favourably to the insured, they reasonably could lead to coverage.

    The Eleventh Circuit was not persuaded by Cincinnati's arguments that certain exclusions applied. The court also agreed with the district court that determining a duty to indemnify was premature. 

Insurers Must Defend Allegations of Faulty Workmanship

    Granting the insured's motion for partial judgment on the pleadings, the court determined the insurers had a duty to defend. Suez Treatment Solutions, Inc. v. Ace Am. Ins. Co. & Liberty Mut. Fire Ins. Co., 2022 U.S. Dist. LEXIS 59044 (S. D. N. Y. March 30, 2022). 

    Suez Treatment Solutions, Inc. held policies from Chubb and Liberty Mutual Fire Insurance Company to cover its operations in connection with the development of a pollution treatment system in North Carolina. When the project ultimately failed, an underlying action sought damages from Suez, alleging breach of contract, negligence, and fraud. Suez filed this case seeking a declaratory judgment that Chubb and Liberty were each obligated to defend and indemnify Suez in the underlying case. 

    The City of High Point hired Suez to upgrade the facilities at its wastewater treatment plant staring in 2021. Because mercury levels were too high in emissions from sewage-sludge incinerators, Suez began working on the installation of a Mercury Removal System. After installation, a leak occurred in a component known as the heat exchanger. The leak caused the system to shut down and weeks-long repairs began. 

    The underlying complaint alleged that the day after the system shut down for repairs, Suez and its subcontractor left and did not instruct High Point on how the system should be monitored during the shutdown. The shutdown caused an increase of the carbon monoxide levels. High Point contacted Suez who instructed the plant to open an outlet damper to evacuate the heat. This action caused temperatures to increase, however. A fire ignited, and the burning carbon created high concentrations of toxic sulphur-dioxide gas. It was alleged that fire created health and safety hazards at the treatment plant and surrounding area. The fire was finally extinguished almost a month after the shutdown by dumping the carbon out of the unit. 

    According to the City, Suez did nothing to repair the unit for months. When attempts to repair were made, they were fruitless. Another fire occurred during the planned start-up, causing extensive damage to the system. 

    High Point sued for breach of contract, breach of warranties, negligence, negligent misrepresentation, fraud, and unfair and deceptive trade practices.  

    When a defense was denied, Suez sued Chubb and Liberty for a declaratory judgment. The Chubb policy was a Contractors Pollution Liability and Errors & Omission Policy that ran from July 24, 2016 to July 24, 2017. Liberty issued a CGL policy with a policy period from March 1, 2016 to March 1, 2017. Suez moved for partial judgment on the pleadings.

    Chubb relied upon a Products Liability Exclusion to deny coverage. The exclusion barred coverage for any suit against Suez "arising out of or related to" "[a]ny goods, products or equipment designed, manufactured, sold, supplied or distributed by [Suez]." The underlying complaint alleged that Suez supplied the mercury removal system that caused the loss and that Suez served as a sales force and distributor. Other underlying allegations, however, related to professional services rendered at the facility, therefore falling outside the scope of the Products Liability Exclusion and triggering a duty to defend. There was a question of fact with respect to whether the damages arose entirely from the "design, manufacture, sale, supply or distribution" of the mercury removal system by Suez, or if other actions taken by Suez - such as a failure to train or supervise - also gave rise to the damage at the High Point facility. Therefore, the Products Liability Exclusion did not, at this stage, preclude coverage as a matter of law. 

    Numerous issues of fact meant that Liberty also had a duty to defend. Liberty argued there was no occurrence because the damage arose from faulty workmanship. But Liberty read the underlying complaint too narrowly. The complaint alleged damage beyond the property Suez supplied, caused by an accident or repeated exposure to conditions. For example, the underlying complaint alleged that the fire damaged other components of the system.

    The business risk exclusions in Liberty's policy also did not bar coverage because issues of fact were present. Further, although the underlying complaint alleged "design and oversight responsibilities" were breached, the Professional Liability Exclusion did not bar coverage because the underlying complaint did not allege that the property damaged arose solely out of a failure to render professional services. 

    Therefore, the court granted Suez's motion against both Chubb and Liberty, granting declaratory relief with respect to the duty to defend.