Arkansas “occurrence”

In Lexicon, Inc. v. ACE American Ins. Co., No. 10-1100 (8th Cir.  Dec.  28, 2010), insured Lexicon was hired by Nu-Iron to act as general contractor for the construction of several silo storage bins for Nu-Iron.  Lexicon subcontracted with Damus for the fabrication and erection of the silos.  Following completion, due to defective welds, one of the silos collapsed, destroying itself and other property, as well as damaging adjacent silos and Nu-Iron product stored in the silos.  After rebuilding the silo and compensating Nu-Iron for the damage to the other property and Nu-Iron’s product, Lexicon sought reimbursement from its CGL insurers, ACE and National Union.   Both denied coverage and Lexicon filed suit for breach of contract.   The federal district trial court granted ACE and National Union’s motions for summary judgment, holding that, under Arkansas law, the faulty workmanship of Lexicon’s subcontractor causing the silo collapse and damaging Nu-Iron’s product did not constitute an “occurrence.”  On appeal, the U.S. Court of Appeals for the Eighth Circuit affirmed that portion of the judgment regarding damage to the collapsed silo but reversed as to the property damage to property other than the collapsed silo.  The court notes that, because it was not clear whether Lexicon was seeking to recover for damages to the adjacent silos, it did not need to decide whether the adjacent silos also constituted Lexicon’s work product for which there would be no coverage.   The court states that its decision is consistent with the subcontractor work exception to the “your completed work” exclusion, while rejecting, on the exceptions to exclusions cannot create coverage basis, Lexicon’s argument that the exception included damage to the subcontractor’s own work.  Noting that the CGL policy in Essex v. Holder “apparently did not contain a your work exclusion,” the Eighth Circuit Erie-guesses that the Arkansas Supreme Court would agree with its decision.

Bookmark the permalink.

Comments are closed.