Court Denies Insurers’ Motion for Summary Judgment on Occurrence and Property Damage
The court rejected the insurers' argument that there was no occurrence or property damage. Ceme-Tube LLC v. Chroma Color Corp., 2024 U.S. Dist. LEXIS 134699 (W.D. Wis. July 30, 2024).
The insurers argued on summary judgment that their respective policies did not provide coverage for Ceme-Tube LLC's claims against Chroma Color. The court found that construing the policies as an insured like Chroma Color would, a reasonable jury could find Ceme-Tube's claims were "property damage" was caused by an "occurrence." First, a reasonable jury could find that there was an occurrence based on Ceme-Tube's allegations. Faulty workmanship alone was not an "occurrence," but faulty workmanship could cause an occurrence under Wisconsin law. The alleged faulty workmanship was Chroma Conor's adding insufficient UV protectant to its colorant, then selling it to Ceme-Tube. Although Chroma Color providing insufficient UV protectant to Ceme-Tube was not itself an occurrence, it allegedly caused one. The tubes, which allegedly lacked adequate UV protection, suffered repeated exposure to harmful UV rays that resulted in an accident, the unexpected premature degradation of the tubes.
Second, a reasonable jury could conclude that Ceme-Tube's complaint and evidence alleged "property damage." Come-Tube alleged that: (a) it received "significant complaints regarding the degradation of its products"; and (b) it may need to repair and replace many tubes that it sold, which at least implied the tubes suffered property damage.
Third, while the insurers agreed that there was no causal nexus between the "occurrence" and "property damage," a reasonable jury could infer a causal nexus between the alleged insufficient UV protectant and tube degradation.
The court went on to find none of the exclusions raised by the insurers were applicable. The "your product" exclusion did not apply when Ceme-Tube alleged that the tubes it manufactured and sold deteriorated prematurely from UV light exposure due to a defect in Chrome Color's product used in production. The "your work" exclusion did not apply for the same reason. Ceme-Tube asserted that its manufactured tubes were damaged not as the result of Chroma Color's work or operations, but by its sale of a defective product.
The "impaired property" exclusion applied to "property damage to 'impaired property' or property that has not been physically injured, arising out of: A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work.'" The impaired property exclusion also required that the impaired property could be restored touse by repair, replacement, adjustment or removal of "your product' or "your work" – here the colorant. Therefore, the "impaired property" exclusion addressed situations where a defective product, after being incorporated into the property of another, must be replaced or removed at great expense, thereby causing loss of use of the property.
Accordingly, the insurers' motions for summary judgment were denied as to whether there was an occurrence and property damage.
