Archive for the ‘Product Liability Coverage’ Category

New Jersey Court Turns the Screws on the Insured, Holding That “Your Product” Exclusion Bars Coverage For Defective Product Claim

Thursday, September 11th, 2014

In Titanium Industries, Inc. v. Federal Ins. Co., No. A-1922-12T1, 2014 WL 4428324 (N.J. Super. Ct. App. Div. Sept. 10, 2014), the court held that the commercial general liability policy issued by defendant Federal Insurance Company (“Federal”) to Titanium Industries, Inc. (“TII”) did not provide coverage for TII’s claim based on the policy’s “Your Product” exclusion.

TII manufactured and supplied titanium products, and sold titanium bars to Biomet Manufacturing Corp. (“Biomet”), pursuant to the parties’ long-term supply agreement. Biomet, a manufacturer of orthopedic implants and devices, used TII’s product to manufacture screws that were incorporated into its products. Biomet’s screws were composed entirely of TII’s titanium. After Biomet alerted TII to defects in its titanium bars which undermined the strength of the products manufactured using the screws, Biomed recalled certain affected products. TII and Biomed settled Biomed’s claim, and TII sought defense and indemnification from Federal.

On motions for summary judgment, the trial court ruled in favor of Federal on its motion, and against TII on its motion. The Appellate Division affirmed that ruling, relying on prior decisions by New Jersey state courts. The court noted that an insured bears the risk of its own faulty work, which is a matter of warranty and not insurance coverage. The court determined that the policy would not provide coverage for the claimed loss, which was based solely upon the defective titanium supplied by the insured in contravention of the express warranties made in the parties’ long-term supply agreement. The insured’s titanium was fashioned into screws, as contemplated by the parties’ long-term supply agreement, and the titanium was otherwise unaltered and not appended to other property that was damaged. Thus, the court concluded that Biomet’s claims were for TII’s breach of its warranties regarding the intended use of its product, and the risk of replacement or repair of its faulty goods was the cost of doing business, and was not a risk passed on to Federal. The court further noted that even if the claim fell within the policy’s insuring agreement, coverage was precluded by the policy’s “your product” exclusion, which excluded coverage for “property damage to your product arising out of it or any part of it,” where “your product” was defined to include “goods or products . . . manufactured, sold, handled, distributed or disposed by” the insured, and included “representations or warranties made at any time with respect to the durability, fitness, performance, quality or use of” the insured’s titanium.


Insured Seeking Defense and Indemnity Forced to “Go Fish” After Failing to Satisfy Policy’s Condition Precedent

Tuesday, August 13th, 2013

By Jason Chorley, Sedgwick San Francisco

In Petco Animal Supplies Stores, Inc. v. Insurance Co. of North America, ___ F.3d ___, 2013 WL 3942889 (8th Cir. Aug. 1, 2013) (Minn.), Meiko Pet Corporation, a Taiwan company, purchased a products liability insurance policy from INA which extended coverage to Meiko’s vendors, including PETCO and its subsidiaries. In 2007, an aquarium heater, manufactured by Meiko and sold by Petco, started a fire at a Medtronic, Inc. plant. Medtronic sued Petco, from whom it had purchased the heater, seeking approximately $1.8 million in damages. Petco tendered the defense of the action to INA, but INA denied the claim, causing PETCO to seek a declaration that it was entitled to defense costs and indemnity in the Medtronic action.

The INA policy contained a condition precedent that stated: “It is warranted, and a condition precedent to recovery hereunder, that Air Pumps, Heater, Filters, Heating Stone, Heated Mat, Heated Bowl and Heated Bucket Heater are UL/CSA approved and/or complied with the mandatory and/or voluntary safety standards of importing countries.” The aquarium heater that started the fire was not “UL/CSA approved,” so INA was required to defend and indemnify PETCO only if the heater complied with “the mandatory and/or voluntary safety standards” of the United States, the importing country. The U.S. Court of Appeals for the Eighth Circuit upheld summary judgment in favor of INA on the basis that PETCO failed to identify any mandatory or voluntary safety standard with which the heater complied.

PETCO argued that the phrase “voluntary safety standards” was ambiguous and reasonably could be interpreted to mean “optional.” The Eighth Circuit reasoned that such an interpretation would mean that the standard would be satisfied irrespective of whether one chooses to comply with it, because it would be “optional.” The Eighth Circuit found that such a reading would render the warranty clause of the policy superfluous. Petco alternatively argued that the heater complied with the mandatory standards of the United States because the Customs authorities would have seized the heater if it did not comply with the government’s mandatory safety standards. The Eighth Circuit held that, although Customs authorities did not seize the heater, it does not follow that the heater necessarily complied with mandatory safety standards of the United States.

Because Petco failed to identify any mandatory or voluntary safety standards with which the heater complied, it did not satisfy the condition precedent under the INA policy, and coverage was precluded as a matter of law.

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