Contractors are often surprised to learn that they do not have insurance coverage if the materials they provide fail. A recent case out of the 11th Circuit Court of Appeals (which oversees Alabama, Florida and Georgia), upheld the trial court’s ruling that a contractor’s insurer was not required to cover claims that the concrete it provided did not meet specifications.
The controversy arose when Morgan Concrete (“Morgan”) agreed to supply concrete to Georgia Concrete (“Georgia”) for its work on a multilevel building on Clemson University’s campus. The contract required that the concrete be able to withstand 5,000 pounds per square inch. During construction of the second floor, Georgia encountered strength deficiencies and attempted to order higher-strength concrete from Morgan. Morgan said it would provide the proper concrete, but the deficiency issues persisted. Morgan alleged that the deficiency issues were the result of Georgia’s mishandling of the concrete through high-temperature exposure and improper maintenance. As a result, Georgia refused to pay Morgan, which led Morgan to cease further deliveries and file a lien on the property.
Georgia then demanded that Morgan pay for the damage Georgia suffered because of the bad concrete. Morgan then filed a claim with its insurer, Westfield Insurance (“Westfield”), asking for coverage of the claims asserted by Georgia. Westfield notified Morgan it would not defend Morgan’s claim, and there was no coverage under its policy. Morgan filed suit against Westfield claiming Westfield was obligated to defend and indemnify it. The court ruled in Westfield’s favor, holding that Westfield had no duty to continue to defend because there was no claim for “property damage” that was covered by the insurance policy. The CGL insurance policy between Morgan and Westfield excluded from coverage “property damage” to a product that was manufactured, sold, handled, or distributed by Morgan. The policy covered “property damage” that Morgan caused, but this claim was for a breach of contract to recover costs attributable to repairing its defective product, and thus there was no damage to property.
This dispute exemplifies how important it is for companies to completely understand the scope and nuances of their insurance policies. Contractors and suppliers should understand what type of damages will trigger coverage for “property damage” and be willing to actively negotiate the necessary coverage parameters when contracting for insurance or claiming coverage. If you have questions about your construction insurance, we recommend you contact an experienced construction attorney.
This article was written by Ethan Hoogeveen, a summer associate at Lamson Dugan & Murray, LLP.