Car Wash Damages
June 27, 2016
The insurer brought an action seeking a declaratory judgment that it had no duty to defend or indemnify the insured car wash installer in an underlying lawsuit arising from a malfunctioning car wash. This case is Auto-Owners Insurance Company v. Southeastern Car Wash Systems, 2016 WL 3027374.
Miller operates a car wash distribution and installation business in Tennessee. Miller was insured through a general liability policy issued by Auto-Owners. Miller contracted with Evans to install and maintain a car wash unit; after installation, the car wash began to malfunction. This caused damage both to the unit and customers' autos. Evans incurred substantial losses, including damage to the car wash unit, lost income, reputational damage, and payments to customers for the damage done to their cars.
Evans sued Miller seeking compensation and Miller sought coverage from Auto-Owners. The insurer filed this declaratory judgment action.
The United States District Court for the Eastern District of Tennessee noted the wording of the general liability policy as to the insuring agreement and said it had to see if the complaints against the insured met the insuring agreement language. The court saw three claims that it said it would examine.
The first claim was for damage to the car wash. The insurer did not contest this claim.
The second claim was for loss profits due to loss of use of the car wash. Auto-Owners argued that this was an economic loss, not property damage as defined in the policy. The court responded that the insurer's argument would essentially read the phrase “all resulting loss of use” out of the definition of property damage as it appears in the policy. Thus, the court declined to hold that a claim for lost income as a result of loss of use of damaged property does not fall within the scope of property damage as defined in the policy.
The third claim was for payments to customers for vehicle damage. Auto-Owwners argued that these payments are economic losses that Evans voluntarily incurred by paying unknown third-parties for damage to their vehicles. The court did agree with Auto-Owners that the payments represents economic, rather than tangible, losses, but the court continued, this does not mean that the payments are not covered by the policy. The court pointed out that the insuring agreement states that the insurer will defend the insured against lawsuits seeking damages because of property damage. This meant to the court that it was not a stretch to conclude that payments made by a business to cover damage to its customers' vehicles are made on account of the damage, or that the payments follow as a consequence of that damage. The court concluded that a straightforward reading of the policy does not, as a matter of law, foreclose the possibility that the claim gives rise to a duty to defend.
Having found that three of the claims alleged against the insured are within the bounds of the policy's coverage, the court then examined the policy for any possible applicable exclusions. Auto-Owners points to two exclusions that it believes apply to Evans's claim for damage to the car wash unit: the your work exclusion and the your product exclusion.
The court ruled that the allegations satisfy the conditions of the your work exclusion. Miller's installation of the car wash constitutes work performed by the insured; the car wash installation had been completed; the car wash sustained damage arising out of some aspect of the unit or its installation; and all of these vents took place on the premises of Evans's service station. Any claim for damages to the car wash itself is thus excluded from coverage under the policy.
As for the your product exclusion, the court found that the car wash fitted comfortably within the policy definition of “your product”. Accordingly, the physical damage to the car wash is excluded from the coverage for property damage and so, Evans's claim seeking recovery for damage to the car wash is precluded.
In conclusion, because Auto-Owners failed to show that all of the claims alleged against Miller in the underlying complaint are unambiguously outside the scope of coverage provided by the policy, and thus, has failed to establish as a matter of law that Auto-Owners has no duty to defend Miller against the claims, the court denied the insurer's motion for summary judgment.
Editor's Note: This case is presented for the court's extensive examination of the issues that arise when a car wash damages vehicles. Lost profits and payments to customers for vehicle damage resulting from a car wash's malfunctioning are all discussed by the court and case law from Tennessee, Texas, the 9th Circuit, Minnesota, and Washington is cited. The court's discussion of economic losses as property damage is also worth perusal.