The Court concluded that the diesel units were physically injured in the process of replacing the flanges because the flanges were welded to the pipes, and the removal process "necessitated injury to tangible property, and the injury was unquestionably physical." That tangible property was the original welds, coating, insulation, and gaskets. The Court noted that "the installation of the leaky flanges…can certainly be said to have injured – harmed or damaged – the diesel units by increasing the risk of danger from their operation and thus reducing their value." However, no physical injury resulted because ExxonMobil replaced the flanges in order to avoid the risk of such injury. On appeal, the parties disputed whether the installation of the faulty flanges physically injured the diesel units. Metals sought indemnification from its insurer. For each flange, this process involved stripping the temperature coating and insulation (which were destroyed in the process) cutting the flange out of the pipe removing the gaskets (which were also destroyed in the process) grinding the pipe surfaces smooth for re-welding replacing the flange and gaskets welding the new flange to the pipes and replacing the temperature coating and insulation.Īfter ExxonMobil sued U.S. When ExxonMobil conducted post-installation testing, it discovered that several flanges leaked and did not meet industry standards such that it was necessary to replace them to avoid the risk of explosion. Metals sold ExxonMobil 350 flanges for use in constructing diesel units.
Metals, the Court appears to hold that damages are covered even when they are not "because of" property damage, leading to vexing issues for the insurance carrier regarding when the duty to defend is triggered and whether rip-and-tear costs are covered when they are not "because of" property damage. Prior to 2015, Texas law held that rip-and-tear damages were covered if there was underlying covered property damage in the first instance. Questions have arisen, however, as to whether and when there is coverage for damages commonly known as "rip-and-tear," which are those damages caused to other property by the necessity of removing, replacing, and correcting defective work. The insuring agreement in most commercial general liability policies states that the carrier "will pay those sums that the insured becomes legally obligated to pay as damages because of…'property damage' to which this insurance applies." In addition, most policies exclude coverage for the defective work of the named insured.
Litigation Update, Insurance, Construction, Articles
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