INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Faulty workmanship bars coverage
VT Halter Marine (VTHM), a shipbuilder, was contracted to build a barge and a tug for a client. During construction, over a thousand steel flange plates were incorrectly bent because of the use of an improperly sized die, leading to thinning and cracking of the plates. The faulty plates were installed onto the vessels, and the cracking was discovered later. The cost of replacing and repairing the cracked flange plates amounted to approximately $3.3 million. VTHM submitted a claim to its insurer, Certain Underwriters of Lloyd’s of London (Underwriters), for the cracked flange plates.
The Underwriters denied VTHM’s claim, asserting that the policy excluded coverage for faulty workmanship and the cost of replacing or repairing improper or defective materials. VTHM contested the denial, leading to a lawsuit for breach of contract. Both parties filed motions for summary judgment in the trial court.
The trial court granted Under-writers’ motion for summary judgment, ruling that the policy unambiguously excluded coverage for faulty workmanship and the cost of repairing, replacing, or renewing any improper or defective materials. VTHM appealed.
In the Supreme Court of Mississippi, VTHM appealed the trial court’s decision, arguing that the flanges were part of the vessel and coverage for faulty workmanship existed if it resulted in cracking of the vessel. The Supreme Court affirmed the trial court’s judgment. The court found that the policy unambiguously excluded the cost of replacing or repairing improper or defective materials.
The court concluded that the faulty workmanship directly resulted in improper materials being installed, and the only resulting damage was to the improper materials themselves. Therefore, VTHM’s claim for the costs of repairing and/or replacing the improper materials installed was not covered under the policy.
The parties agreed that the root of the damages was faulty workmanship in creating the flange plates, and they agreed that the flange plates were cracked and the cracks were discovered after the plates were installed. Nothing on the vessels was damaged other than the flange plates, and the costs incurred were solely a result of repairing and/or replacing the cracked plates.
VTHM argued that “improper or defective materials” is a completely separate and distinct concept from “faulty workmanship” and that the two cannot be read together; thus, the exclusion for the cost of repairing or replacing improper or defective materials did not apply to its claim.
Underwriters countered that any damage to the vessel must be resulting or subsequent to be covered, and pointed to the opinion of VTHM’s own employees and brokers that the damage was excluded. Underwriters also argued that all-risk policies typically are not intended to cover damage that is the fault of the insured, as that constitutes a business risk to be borne by the insured.
Underwriters maintained that the trial court was correct in holding that the exclusion of coverage for replacing or repairing improper or defective materials applied to the claims. Underwriters further urged that the flange plates cracking did not constitute cracking of the vessel.
The Mississippi Supreme Court affirmed the trial court’s grant of summary judgment in favor of Underwriters.
VT Halter Marine, Inc. v. Certain Underwriters of Lloyd’s of London—Supreme Court of Mississippi—No. 2023-CA-00019-SCT—May 30, 2024.
