Insurer’s Motion for Summary Judgment on Faulty Workmanship Denied

Tred R. Eyerly | Insurance Law Hawaii

    The court found that the insurer failed to meet its burden on summary judgment seeking a judgment that faulty workmanship precluded coverge. Auto-Owners Ins., Co. v. AAA Discount Homes, LLC, 2024 U.S. Dist. LEXIS 48463 (S.D. Ga. March 19, 2024).

    Heather Way sued AAA Discount Homes, LLC and Delta Transport & Management, Inc. for manufacturing defects found in a manufactured home which was delivered and assembled by Delta. Way had contracted with AAA for the construction, delivery, assembly, setting, tie down with brick underpinning steps and construction of front and back porches. AAA, assisted by Delta, delivered the home and assembled it, including raising the roof, over the course of a few days. 

    Subsequently, Way discovered extensive water damage and mold in the home. Way alleged that AAA and its subcontractors made careless, unsafe, and unsuccessful attempts at removing the old and repairing the water damage. The presence of chemicals in the home made it uninhabitable. Way alleged the home was improperly assembled by Delta and its negligence resulted in damages.

    Way sued AAA and Delta. Delta tendered the defense to Auto-Owners, but the tender was denied. Auto-Owners sued Delta for declaratory judgment.

    Delta’s role was to transport the two halves of the home and assemble it. Auto-Owners had not shown that the home was defective before Delta assembled it, nor had Auto-Owners shown that the resulting water damage was merely a repair or replacement of Delta’s assembly work. Without more, the court could not find the resulting damage was not “property damage” under the policy. 

    Auto-Owners also asserted various business risk exclusions barred coverage. First the policy precluded coverage of “property damage” to “personal property in the care, custody or control of the insured.” There was a question of fact whether Delta had complete dominion over the home. The court declined to find that delivering and assembling the home gave Delta exclusive control over it such that coverage ws denied under the “care, custody, or control” of the policy.

    The policy also excluded coverage of “property damage” to “your product” arising out of it or any part of it.”Your product” meant “any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by . . . You.” Auto-Owners contended that Delta “handled” the home. Delta, however, did not construct or sell the home. The words appearing alongside “handled” all required significant control over the production of the home. If handled was given a meaning related to the words in the list, handled could be interpreted to require more than just delivery and assembly. Because the word “handled” could be interpreted under the language of the policy as requiring more than simply delivering and assembling the home, the court found the term’s meaning ambiguous.

    The policy excluded “property damage” to “your work” raising out of it or any part of it.” It was unclear whether the damages claimed were the part of the home Delta worked to assemble or whether the damages were to other property damaged by the faulty assembly. Thus, Auto-Owners had not carried its burden to show this exclusion applied.

    Finally, the policy precluded coverage of ‘”property damage” to impaired property or property that had not been physically injured, arising out of: (1) a defect, deficiency, inadequacy, or dangerous condition in “your product” or “your work.” The scope of “your work” was debated by the parties. Auto-Owners had not shown the damages sought were to address the defective workmanship rather than to redress damages to other parts of the home. Because Way alleged the mold caused by water damage – and not the assembly of the home – made the home uninhabitable, Auto-Owners had not show the home constituted “impaired property.”

    Auto-Owners’ motion for summary judgment was denied.

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