April 23, 2006

Damages due to defective construction material are held not to be "occurrences" for purposes of coverage

In OneBeacon Insurance v. Metro Ready-Mix, No. AMD 05-1530 (D. Md. 4/18/2006),the Court granted the insurer's motion for summary judgment in a case involving construction defects.  The insured was alleged to have provided defective grout to a contractor for use on a construction project in Baltimore.  Consequently, the contractor was required to demolish and reconstruct pilings that had been constructed employing the grout.  When the insured filed suit against the contractor for unpaid invoices, the contractor filed a counterclaim alleging a breach of contract and breach of express warranty in conection with the defective grout as to the one project.

The insurers filed a declaratory judgent action to determine whether they were obligated to defend and indemnify on the counterclaim.

The insurers raised the familiar argument that since the insured failed to meet its contractual obligations in failing to provide conforming grout, it was expected and foreseen that the contractor would request and be entitled to corrective action and reimbursement for the costs of the same, for the defect and that therefore there was no "occurrence."

The Court agreed that the damages sought by the contractor in its counterclaim were plainly related to the satisfaction of the insured's contract and that therefore no "occurrence" gives rise to the insured's liability.  As the grout's only purpose was to support the pile caps and columns, and was an integral component of them in relation to the structure, the contractor's damages relate to the satisfaction of the insured's contractual obligations to construct its product.

Apr 23, 2006 4:58:19 PM | Insurance

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