Opinion
Civil Action No. 01-0623 c/w 01-1209 Section M
March 7, 2002
ORDER
Before the Court are Motions for Summary Judgment filed by each of the three parties in this declaratory judgment action, all of which came for hearing on February 20, 2002 with oral argument. After consideration of the policy, the assiduous briefing submitted by able counsel for all parties, and the argument presented at the hearing, for the following reasons, the Court concludes that the policies at issue do not provide coverage for this claim.
FACTS
This is an insurance coverage dispute in which Bollinger Shipyards, Inc., the insured, seeks coverage under its primary and excess comprehensive general liability policies issued by XL Specialty Insurance Company and Navigators Insurance Company, respectively, for repair costs and loss of use claims precipitated by Bollingers faulty workmanship in the manufacturing of four liftboats. It is undisputed that improper welding by Bollinger during construction caused cracks in the legs of the liftboats, which upon discovery, Bollinger acknowledged) accepted responsibility, and undertook to replace and/or repair the affected legs.
Bollinger contends that the "work produce" exclusion contained in a standard Comprehensive General Liability Policy was negotiated out of this policy, and thus, the "damage" to its work product is covered. XL Specialty and Navigators contend, inter alia, that coverage under these policies is not triggered because there was no occurrence or property damage as defined in the policy; Bollinger has no legal liability as required under the policy; and exclusions other than the work product exclusion are applicable.
LAW AND ANALYSIS
The policy at issue, like most Marine Comprehensive Liability Policies, provides coverage for those sums that the insured becomes "`legally obligated to pay" because of "property damage" caused by an "occurrence." An occurrence is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Bollinger contends that continuous and repeated exposure of the legs to the faulty welding in the gear rack caused the "catastrophic transverse cracks in the legs" — the "occurrence."
The Fifth Circuit has described an occurrence as a "discrete event that a reasonable person would call an accident." Trinity Industries. Inc. v. Insurance Company of North America, 916 F.2d 267, 269 (5th Cir. 1990). The Court has also held that defective construction which suddenly and unexpectedly broke down causing physical damage on several occasions constituted an occurrence. Riley Stoker Corp. v. Fidelity and Guaranty Insurance Underwriters, Inc., 26 F.3d 581 (5th Cir. 1994).
In this case, however, there was no sudden or unexpected breakdown that caused physical damage. The uncontroverted evidence establishes that the crew on one of the liftboats noticed water coming from one of the legs of one of the liftboats, the P.G. JONES. The liftboat was subsequently called in for inspection by Bollinger and the defective welding which caused the cracks was discovered and the cracked legs either repaired or replaced. Thereafter, over the course of several weeks, the other three liftboats were inspected and found to have essentially the same problem. I find that no accident has occurred and am unable to conclude that an "occurrence" as defined in the policy has taken place.
The acknowledged defective condition did not cause any property damage. Property damage is defined in the policy as "physical injury to tangible property, including all resulting loss of use of that property." The Trinity court noted that the language "`physical loss or damage' strongly implies that there was an initial satisfactory state that was changed by some external event into an unsatisfactory state." Trinity, 916 F.2d 267, 270-271.
There was no external event that caused damage. The Root Cause Investigation Report prepared by Bollinger employees and submitted as Exhibit 4 attached to Navigator's Motion for Summary Judgment, indicates that improper heating and cooling of the welding on the legs caused the transverse cracks. But, it cannot by gainsaid that those cracks are within the coverage parameters previously referred to. See Alton Oschner Medical Foundation v. Allendale Mutual Ins. Co., 219 F.3d 501 (5th Cir. 2000).
I am unable to conclude that Bollinger would have been "legally obligated to pay" Cardinal and Montco for the repair of the vessels or the loss of use. The Fifth Circuit Court of Appeals has held that the phrase "legally obligated to pay" only applies to tortbased obligations.Data Specialties, Inc. v. Transcontinental Ins. Co., 125 F.3d 909 (5th Cir. 1997). The cracks in the legs of the lift boats resulted in possible, though not necessarily probable, contractual liability, which Bollinger acknowledged and resolved. Bollinger was not "legally obligated to pay" in tort for the damages because there was no negligence-based accident or occurrence and indeed the claims against Bollinger were based on alleged breach of contract. (See Exhibit F, attached to XL Specialty's Motion for Summary Judgment).
XL contends that the warranties in the Bollinger's contracts with its customers had expired and that Bollinger was under no legal obligation to repair the vessels.
Finally, even assuming these claims meet the occurrence, property damage and legal liability requirements necessary to trigger coverage, the policy contains exclusions for property damage arising out of a defect in the insured's product and also for damages arising out of loss of use and repair or replacement of the insured's product. These exclusions apply with full force to Bollinger's claims for repair and replacement of faulty workmanship and the loss of use associated therewith.
The policy specifically excluded coverage for "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.'" It also excludes "damages claimed for any loss, cost, or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of: `your product'; "your work; or `impaired property'. product and thus, the damage to its work product is covered.
Bollinger contends that there is no exclusion for damage to Bollinger's work or product and thus, the damage to its work product is covered. However, coverage must be triggered prior to considering the exclusions, or non-exclusions as the case may be. Omitting the work product exclusion from a comprehensive general liability policy does not pretermit the requirement of coverage, which the Court finds lacking in this case.
general liability policy containing a "work-product" exclusion has uniformly been held in this circuit not to insure any obligation of the policyholder to repair or replace his own defective work or defective product." See Joe Banks Drywall Acoustics v. Transcontinental Ins. Co., 753 So.2d 980, 984 (La.App. 2d Cir. 2000).
Accordingly, the Motion for Summary Judgment filed by XL Specialties is GRANTED. The Motion for Summary Judgment filed by National Navigators Insurance Company is GRANTED. The Motion for Summary Judgment filed by Bollinger Shipyard is DENIED. Counsel for XL Specialty Insurance Company is requested to submit a judgment consistent with this order.