Park-Ohio Holdings Corp. v. Liberty Mut. Fire Ins. Co.

• Decision Date: 30 October 2015
• Docket Number: CASE NO. 1:15–CV–00943
• Citation: 142 F.Supp.3d 556
• Parties: Park–Ohio Holdings Corp., et al., Plaintiffs, v. Liberty Mutual Fire Insurance Co., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

142 F.Supp.3d 556

Park–Ohio Holdings Corp., et al., Plaintiffs,

v.Liberty Mutual Fire Insurance Co., et al., Defendants.

CASE NO. 1:15–CV–00943

United States District Court, N.D. Ohio.

Signed October 30, 2015

Lindsey E. Sacher, Michael E. Brittain, Calfee, Halter & Griswold, Cleveland, OH, for Plaintiffs.

Katherine M. Klingelhafer, William M. Harter, Frost Brown Todd, Columbus, OH, Brian Douglas Sullivan, Clifford C. Masch, Reminger & Reminger, Cleveland, OH, for Defendants.

OPINION & ORDER

JAMES S. GWIN, UNITED STATES DISTRICT JUDGE:

In this case, the Court decides whether a general commercial liability insurance policy provides coverage where the insured party sold defective washers and later settled its customer claim after the customer incurred significant expenses repairing equipment that had included the defective washers.

Plaintiffs Park–Ohio Holdings Corp. ("Park–Ohio") and Supply Technologies, LLC ("Supply") sue for coverage under Defendant Liberty Mutual Fire Insurance Company's ("Liberty") and Defendant Allianz Global Risks U.S. Insurance Company's ("Allianz") insurance policies. Defendants move for summary judgment.¹ For the following reasons, this Court GRANTS Defendants' motion for summary judgment.

I. Background

Plaintiff Supply is a subsidiary of Plaintiff Park–Ohio. Sometime before 2012, Supply entered into a contract with Schneider Electric ("Schneider") to supply Schneider with cap screws for use in Schneider's PZ4 NW Cradle component ("cradles").

In supplying cap screws to Schneider, Supply incorporated washers that it bought from a third party. Unknown to Supply, the washers had hydrogen embrittlement, a defect that can lead to cracking in the washers, which can cause electrical arcing. Supply sold the cap screws with the defective washers to Schneider.

Schneider then assembled the cap screws into the cradles and installed the cradles at various customer locations. After installation, some of the washers cracked. Outside testing showed the washers were defective. Schneider replaced the washers in about 7,000 cradles either at customer locations or at Schneider's warehouse.

In June 2012, Schneider made claims against Plaintiffs for over $14 million in costs that Schneider experienced in replacing the cap screws in about 7000 cradles.² In May 2013, Plaintiffs notified Defendant Liberty of Schneider's claim.³ Liberty denied Plaintiffs' coverage claim after performing a coverage analysis.⁴ In December 2014, Plaintiffs settled with Schneider (the "Schneider settlement"). That agreement released Plaintiffs from all claims for a payment of $2,180,000.⁵

Plaintiffs had a Commercial General Liability ("CGL") policy⁶ with Defendant Liberty covering the period when Schneider's claims arose. Plaintiffs also purchased a Commercial Umbrella Liability Policy ("Umbrella")⁷ with Defendant Allianz for the same period.

In September 2014, Plaintiffs Park–Ohio and Supply notified Defendants that one of the washers Supply had sold may have caused a fire at one of Schneider's customer's locations.⁸ Plaintiffs provided a fire report,⁹ but did not provide the other information that Defendants requested.

Plaintiffs Park–Ohio and Supply bring this action for indemnity of the settlement amount.¹⁰ With their motion for summary judgment, Defendants Liberty and Allianz argue that the claim does not trigger coverage under the CGL or the Umbrella policy,¹¹ and that if it did, one of several exceptions to coverage would preclude coverage of the settlement.

The CGL

Defendant Liberty's CGL does not trigger coverage unless "the insured becomes legally obligated to pay ... damages because of ... ‘property damage’ ... [and] only if: (1) The ... ‘property damage’ is caused by an ‘occurrence’¹² ...."¹³

Once property damage caused by an "occurrence" triggers coverage, Defendants are not required to cover claims if one or more exclusions to coverage apply. The CGL has the following policy exclusions, among others: 1) the Your Product Exclusion; 2) the Recall Exclusion; 3) the Contractual Liability Exclusion; and 4) the Impaired Property Exclusion.¹⁴ If Plaintiffs' claim falls under one or more valid policy exclusions, then Defendants do not need to cover the claim.

As explained more fully below, this Court finds that the contractual liability exclusion justifies Defendants' denial of coverage of the Schneider settlement. As a result, the Court does not address the issue of whether the claim triggered coverage because of an "occurrence" under the CGL.

II. Standard of Review

Under Federal Rule of Civil Procedure 56

, "[s]ummary judgment is proper when ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ "¹⁵ The moving party must first demonstrate that there is an absence of a genuine dispute as to a material fact entitling it to judgment.¹⁶ Once the moving party has done so, the non-moving party must set forth specific facts in the record—not its allegations or denials in pleadings—showing a triable issue.¹⁷ The existence of some doubt as to the material facts is insufficient to defeat a motion for summary judgment.¹⁸ But the Court views the facts and all reasonable inferences from those facts in favor of the non-moving party.¹⁹

III. Discussion

Regarding interpretation of insurance policy agreements:

[courts] give effect to the contracting parties' intent by examin[ing] the insurance contract as a whole and look[ing] to the plain and ordinary meaning of the language used in the policy unless another meaning is clearly apparent from the contents. Where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured. This is particularly true when considering provisions that purport to limit or qualify coverage under the policy."²⁰

Coverage analysis largely turns on the damages sought.²¹ If the damages are for the insured's own work, there is generally no coverage. If the damages are consequential and derive from the work the insured performed, coverage generally will lie. The underwriting intent is to exclude coverage for the contractor's business risks, but provide coverage for unanticipated consequential damages.²²

Business risks are "risks that are the normal, frequent, or predictable consequences of doing business, and which business management can and should control or manage."²³ "Repair or replacement of faulty workmanship is a business expense and not an insurable liability. Therefore, a commercial general liability policy ‘does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident.’ "²⁴ These principles guide the Court's analysis of the CGL's policy exclusions.

The Defendant Insurance Companies say they correctly denied indemnity because four insurance contract exclusions stopped coverage for the Park–Ohio and Supply claims. The insurance companies say coverage is excluded by: 1) the Your Product Exclusion; 2) the Recall Exclusion; 3) the Contractual Liability Exclusion; and 4) the Impaired Property Exclusion.

Coverage under the CGL

Defendants Liberty and Allianz make related arguments that Plaintiffs have no coverage because Plaintiffs' claims involved no "occurrence" and because the insurance contracts exclude breach of contract damages. With both of these arguments, Defendants Liberty and Allianz say the Schneider claims were breach of contract or warranty claims that are not occurrences under the insurance contract and say that contract claims are also excluded under the insurance contract.

In Westfield Ins. Co. v. Custom Agri Systems, Inc.,

the Ohio Supreme Court generally held that "the CGL policy does not provide coverage to Custom for its alleged defective construction of and workmanship...."²⁵ As one commentator has described, "poor performance is a cost of doing business; it is not a part of the insurance objective of shifting risk. A contractor's poor performance is outside the scope of CGL coverage."²⁶

Couch on Insurance says the same:

A commercial general liability policy is designed and intended to provide coverage to the insured for tort liability for physical injury to the person or property of others. A commercial general liability policy is not intended to provide coverage for the insured's contractual liability which merely causes economic losses. Similarly, a claim for faulty workmanship, in and of itself, is not an occurrence under a commercial general liability policy because a failure of workmanship does not involve the fortuity required to constitute an accident. Instead, what does constitute an occurrence is an accident caused by or resulting from faulty workmanship, including damage to any property other than the work product and damage to the work product other than the defective workmanship.²⁷

As described, Supply's customer Schneider made claims because the Supply washers were defective. The defective washers required Schneider to replace the defective washers in cradles in Schneider's inventory and cradles with Schneider customers. Because the Schneider claims sound in warranty and because the resulting damages sound in warranty, they differ from the consequential damages that GCL policies cover. Schneider's claims were not an "occurrence under the policy." Therefore, the Court GRANTS Defendants' motion for summary judgment on this issue.

The Contractual Liability Exclusion

Relatedly, Defendant Liberty and Allianz say that Schneider made breach of contract and warranty claims that were separately excluded from coverage.

The CGL does not cover " ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement."²⁸ As a qualification to the exclusion, the CGL states that the "exclusion does not apply to liability for damages ... [t]hat the insured would have in the absence of the contract or agreement."²⁹ Ohio courts treat "[t]...