PA Court Rules Coverage For Defectively Manufactured Wheel Barred By “Business Risk” Exclusion of CGL Policy

Plasticert, Inc. v. Westfield Insurance Company
2007 Pa.Super 124, 2007 Pa.Super.LEXIS 820 (Pa.Super Ct., May 1, 2007)

Plasticert manufactures thermoplastic wheels used in gravity flow product lines. A customer sued it because wheels that the customer purchased were breaking and cracking, and were determined not to have been manufactured to the customer’s specifications.

Plasticert carried general commercial liability (“CGL”) insurance and an umbrella policy both issued by Westfield Insurance Company. Plasticert filed a declaratory judgment action against Westfield, to determine, inter alia, coverage under the policies. The trial court determined, and the parties conceded, that the exclusionary language in both policies was similar so that the outcome of the instant matter would be the same under both policies.

Coverage was triggered under either policy in the event of an “occurrence” that resulted in “property damage”. The trial court concluded that the facts alleged in the underlying lawsuit fit within the definitions of “occurrence” and “property damage”, but nonetheless found that the exclusion “n”, the “Sistership Exclusion,” barred coverage and granted judgment on the pleadings in favor of Westfield.

Plasticert appealed the trial court’s decision arguing the trial court committed an error of law in applying the “Sistership Exclusion” denying Plasticert coverage and legal defense costs.

The Superior Court’s decision turned on exclusion “k” (the business risk exclusion) of the CGL policy which excluded coverage for “property damage” to “your product” “arising out of it or any part of it.” The Superior Court applied Pennsylvania case law addressing similar policy language and concluded that “CGL policies are designed to provide coverage where a defect in the insured’s work causes personal injury or damage to the property of a third party.” Because the underlying complaint asserted that Plasticert’s wheels failed to perform to specifications, consistently shattering under normal use, and does not allege that the failure of the wheels resulted in personal injury or damage to any property other than the wheels themselves, the business risk exclusion applied, barring coverage for Plasticert’s failure to deliver wheels that conformed to contract specifications.

The Superior Court also rejected Plasticert’s argument that because it obtained a defective component part from another company the exclusion should not apply, stating that Plasticert’s contractual obligation was to deliver wheels conforming to its customer’s specifications and that it was precluded from obtaining coverage for its failure to ensure that a component part of its wheels met the customer’s terms.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

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