Ninth Circuit Affirms Ruling Of No Coverage Under A CGL Policy Based Upon Absence Of Evidence That "Property Damage" To Materials Behind The Insured's Work Took Place During The Policy Period
In Shilo Inn v. Maryland Cas. Co., 2010 U.S. App. LEXIS 24086 (9th Cir. Or. Nov. 23, 2010), an unpublished opinion, the Ninth Circuit Court of Appeals affirmed the decision of an Oregon District Court by ruling that a policy of insurance issued by Maryland Casualty to its insured did not cover the damages claimed by Shilo because the record contained no evidence that “property damage” took place during the policy period as required by the Maryland policy.
Shilo had contracted with Maryland Casualty’s insured, Grant, to install various granite components in its hotel, including granite panel tub surrounds. Shilo determined the granite tub surrounds were poorly installed, and filed a complaint in arbitration against Grant alleging claims for breach of contract and negligence for faulty work. In a Memorandum of Decision, the arbitrator found that much of Grant’s work was defective and faulty, and that, as a result, water intrusion had occurred behind the granite tub surrounds in many rooms. The arbitrator also found that there was little evidence of the extent of water intrusion damage behind the granite. The arbitrator awarded Shilo damages against Grant for the cost to remove improperly installed granite panels and to install new granite tub surrounds, and Shilo’s mitigation cost to hire another contractor to make the panels watertight. Notably, the arbitrator awarded no damages for wall board, or framing or any components behind the panels.
Shilo then filed a Writ of Garnishment against Grant, noticing Maryland Casualty as garnishee, to recover the judgment entered against Grant in state court. Maryland Casualty removed the garnishment action to federal court. Shilo’s claim for coverage for property damage under the policy was based upon its contention that, during the policy period, Grant negligently installed granite that allowed water to intrude into the tub surrounds. In denying Shilo’s summary judgment motion and granting Maryland Casualty’s cross-motion for summary judgment, the District Court focused on the policy’s exclusion for property damage to “[t]hat particular part of any property that must be restored, repaired, or replaced because ‘your work’ was incorrectly performed on it” (emphasis in opinion), and ruled that the arbitration award of damages to remove and replace defectively installed granite tub surrounds was excluded from coverage.
On Shilo’s appeal, the Ninth Circuit’s focus was on whether there was evidence in the record supporting Shilo’s contention that “property damage” had taken place during the policy period. Noting evidence that the rooms had not been used until after the policy period, and noting that Shilo had presented no evidence that “property damage” had taken place during the policy period, the Ninth Circuit affirmed the District Court’s grant of summary judgment for Maryland Casualty. In doing so, the Ninth Circuit made clear that, under Oregon law, coverage is triggered by the occurrence of property damage, defined in the Maryland Casualty policy as physical injury to tangible property, even if the damage is not discovered until later. St. Paul Fire & Marine Ins. Co. v. McCormick & Baxter Creosoting Co., 324 Or 184, 923 P.2d 1200, 1211 (1996). Addressing Shilo’s contention that “property damage” takes place at the moment a defective product is installed, the Ninth Circuit emphasized that McCormick does not hold that “mere installation of a defective product, without resulting physical injury to property during the policy period, triggers coverage.” Also, the Ninth Circuit notably did not address Shilo’s contention that the policy provided coverage for the cost to remove and replace the insured’s defective work in order to see if there was any actual physical injury to materials behind the insured’s work.
