Author: Eric B. Kjellander
The construction industry has numerous insurance products available to limit or control risk. While many companies take advantage of these policies, either voluntarily or oftentimes required by contract, few know the extent or limits of these policies. Recently, the United States Court of Appeals for the Sixth Circuit provided some clarity as to the limits for certain insurance coverage.
In the broadest sense, a commercial general liability (“CGL”) policy provides coverage for damage as a result of bodily injury and property damage. CGL policies typically include both a duty to defend an insured and a duty to indemnify for covered claims.
Background of the Dispute
The Robbins Company is a designer, manufacturer, and supplier of tunnel-boring machines. JCM Northlink, LLC contracted with Robbins to lease one of the machines for a construction project in Seattle, WA. The contract contained a clause stating that the machine was to be free from all latent defects in materials or workmanship. Two years in to the agreement, an internal bearing shattered and the machine stopped working causing the construction project to be delayed. As a result, JCM terminated its contract with Robbins and filed for arbitration based on Robbins’ alleged breach of contract. In its claim, JCM demanded costs associated with the delays in excess of $40 million. The arbitration demand was silent as to any non-contractual damages.
Robbins was insured through a CGL policy issued by Maxum Indem. Co. Fifteen months after the arbitration had been filed, Robbins notified Maxum of the arbitration and sought insurance coverage under the CGL policy. Maxum denied coverage and filed for a declaratory judgment in federal district court, asserting that it had no duty to defend Robbins in the arbitration.
The federal court agreed with Maxum and found no duty to defend Robbins because JCM’s arbitration claim was based on a breach of contract claim. Robbins appealed the lower court’s decision to the Sixth Circuit Court of Appeals. While it disagreed with the lower court’s reasoning, the Sixth Circuit (the federal appellate court that covers Ohio, Kentucky, Tennessee, and Michigan) agreed with the trial court in holding that Maxum had no duty to defend Robbins in the arbitration.
The court relied upon the language found in CGL policy that the “breach of contract” exclusion indisputably covered JCM’s claim. Because the arbitration claim fell within the exclusion, Maxum had no duty to defend. For the first time on appeal, Robbins attempted to introduce new evidence of claimed damage separate and apart from the contractual claims. The court noted that Robbins was in possession of the information prior to the lower court issuing its decision and failed to timely introduce it. As a result, the trial court did not have the benefit of the additional information. The appellate court would not consider the new evidence for the first time on appeal and Robbins’ appeal was denied.
Maxum Indem. Co. v. Robbins Co.serves as an important reminder to industry participants to discuss the extent and limits of their insurance products with their insurance brokers including the necessary requirements to make a timely claim. Most general liability policies do not include coverage for breach of contract claims. The purpose of insurance is to mitigate and control risk. As a result, it is vital that companies be aware of the specifics of their policies, the price of obtaining additional coverage, and any limitations of such coverage.
For more information on this topic, please contact the author or a member of Benesch’s Construction Practice Group.
Eric B. Kjellander at email@example.com 614.223.9329.