“A Guide To Liberty’s Texas CGL Coverage Showdown”
The Texas Supreme Court is set to hear arguments Sept. 2 in a case that will decide whether two terms common in commercial general liability policy exclusions are ambiguous as U.S. Metals Inc. seeks coverage from Liberty Mutual Group Inc. for a settlement over allegedly defective refinery equipment. Here, Law360 examines the history of the case and its potential effect on property damage coverage litigation.
Industry observers have said that pursuant to Texas law, if the high court finds the terms are ambiguous, U.S. Metals and insureds in other coverage cases would likely be able to prevail by showing their interpretations of the terms are reasonable.
But David S. White, counsel in Thompson & Knight LLP’s Dallas office, said he thinks the Texas Supreme Court will refuse to find the two exclusions ambiguous.
Instead, the high court will likely follow a Georgia federal court’s 2008 decision in Gentry Machine Works Inc. v. Harleysville Mutual Insurance Co., White said. That case applied the impaired property exclusion and stated that physical damage to parts connected to a defective product — parts that must be destroyed or damaged in the replacement process — are treated like the defective product itself and not covered.
“The crucial question should be whether any parts, not the product itself, were physically damaged when the product failed, not during the replacement process,” White said.