6th Cir. Finds No “Occurrence” Triggering Duty to Defend When No Damage to Third-Party Property

The Sixth Circuit, applying Michigan law, held that there was no “occurrence” under a policy where the complaint solely alleged faulty workmanship and failed to plead property damage to a third-party’s property.

Steel Supply & Engineering Co. (“Steel Supply”) contracted to fabricate and erect steel for a construction project in Carmel, Indiana. Eventually, one of the workers at the construction site discovered defects in the steel. Carmel filed suit against Steel Supply for breach of contract, among other claims. The complaint alleged that “a particular and ‘critical’ connection that Steel Supply designed was ‘inadequate’ to handle the ‘complicated and significant’ ‘forces coming into’ it,” requiring immediate remediation.” The complaint also alleged that the construction delays damaged Carmel and other contractors. Carmel sought “an amount sufficient to compensate CRC fully for its damages, including, but not limited to, direct, indirect and consequential damages, engineers’, architects’, attorneys’ and other professionals’ fees and for all other proper relief.”

Illinois National Insurance Co. (“Illinois National”) initially assumed Steel Supply’s defense. However, it later denied coverage and advised Steel Supply that it would withdraw its defense in 30 days. Steel Supply filed a suit against Illinois National. The District Court granted Illinois National’s motion for summary judgment.

The Sixth Circuit affirmed summary judgment in favor of Illinois National. The court held that there was no occurrence under the policy. The court reasoned that under Michigan law, faulty workmanship by itself does not constitute an occurrence. The court did recognize that there is an exception to this rule if the faulty workmanship harms a third party’s property; however, the court found that there was no record that a third party sought contribution from Carmel for property damage and Carmel did not plead a reimbursement claim for third-party property damage or mention photographs that supposedly showed property damage in the complaint. As such, the court found that the allegations in the complaint did not require Illinois National to defend Steel Supply. Steel Supply Eng’g Co. v. IL Nat’l Ins. Co., No. 14-2216 (6th Cir. Aug. 13, 2015).