Defective Workmanship Standing Alone Is Not an Occurrence

The insured general contractor that subcontracted welding work on a silo that collapsed due to faulty welding brought an action against its general liability insurer seeking reimbursement for property damage caused by subcontractor's faulty work. The district court granted the insurer's motion for summary judgment and this appeal followed. This case is Lexicon, Inc. v. ACE American Insurance Company, 2010 WL 5293808 (C.A.8 Ark. ).

Lexicon built a battery of silos in the West Indies. Months after completion, one of the silos collapsed because of faulty welding work done by Lexicon's subcontractor, Damus Limited. The collapse caused millions of dollars in property damage; the silo and its contents were destroyed and nearby equipment was damaged. Lexicon reimbursed the owner of the silo for its damages and spent millions of dollars to clean up the site, re-erect the silo, and replace damaged property. The insured notified its insurer, ACE American, of the loss but the insurer refused to reimburse Lexicon. The insured then sued its insurer alleging the insurer is obligated under commercial general liability policies to cover the claim for property damage. The insurer filed a declaratory judgment action.