Unpublished Disposition, 878 F.2d 385 (9th Cir. 1989)

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U.S. Court of Appeals for the Ninth Circuit - 878 F.2d 385 (9th Cir. 1989)

AETNA CASUALTY AND SURETY CO., Plaintiff-Appellee,v.ARC MATERIALS, d/b/a WMK Builders Products, Defendant-Appellant;Safety Mutual Casualty Corp., Defendant-cross-claimant-Appellee;andMcibs, Inc., Defendant.

No. 88-15292.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 6, 1989.Decided June 28, 1989.

Before FARRIS, DAVID R. THOMPSON, and TROTT, Circuit Judges.


The facts are undisputed. The question is whether the acts complained of were within the relevant policy provisions:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence ... "property damage" means (1) physical injury to or the destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

F.2d 477, 482 (9th Cir. 1988), cert. denied, 109 S. Ct. 817 (1989).


Although Aetna presents several arguments in support of its lack of liability for the costs incurred by WMK, the issue of "property damage," the basis for the district court's decision, is dispositive. McIbs' molds produced an unsatisfactory product. Because the molds failed to produce blocks to specifications, WMK incurred costs. The question is whether the failure of the molds to successfully operate physically injured the WMK blocks. WMK argues that the molds physically injured the blocks because the blocks were deformed (incorrectly sized) and diminished in value. The cases WMK cites in support of its theory concern things that were physically altered, not poorly made or diminished in value. See Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188 (9th Cir. 1986) (water suffered physical injury when polluted by oil); Missouri Terrazzo Co. v. Iowa Nat'l Mut. Ins. Co., 740 F.2d 647 (8th Cir. 1984) (cracking and discoloration of defective floors); Lindsay v. United States Fidelity & Guar., 676 P.2d 203 (Mont.1984) (core samples physically injured by salting with gold).

WMK also argues that its mix was "damaged insofar as it was formed into deformed blocks." The mix was not physically damaged; it was formed into imperfectly-sized blocks. The molds did not cause any physical injury to property. As the district court found " [t]here is no evidence these blocks injured or destroyed any other property [than the blocks themselves]. Nor is there evidence that any of the labor or material costs were related to the repair or replacement of any property other then the blocks supplied by WMK." Instead, the unsatisfactory performance of the molds required the builder to perform additional work, reimbursed by WMK. The unsatisfactory performance of the molds also caused WMK to not be able to sell the remaining blocks it had already produced at the expected price. Neither of those events qualify as a physical injury. Courts have rejected claims that a loss of sales or the need to take corrective measures constitutes "property damage" within the meaning of a CGL policy. See Hamilton Die Cast, Inc. v. U.S. Fidelity & Guaranty Co., 508 F.2d 417, 419-20 (7th Cir. 1975) (damages to business reputation and loss of investment not property damage); Federated Mut. Ins. Co. v. Concrete Units, Inc., 363 N.W.2d 751, 756 (Minn.1985) (" 'diminution in value' is not 'property damage' "); St. Paul Fire & Marine Ins. Co. v. Coss, 80 Cal. App. 3d 888, 145 Cal. Rptr. 836, 839 (1978) ("poor workmanship on the delivered product is not 'property damage' "); see also Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A.2d 788, 793 n. 4 (1979).

The risk for which WMK seeks coverage is outside the scope of the CGL policy insurance. Instead, the risks are a problem addressed by contractual liablity, as opposed to the tort liability with which insurance is concerned. See generally Weedo, 405 A.2d at 790-91 (discussing Henderson, Insurance Protection for Products Liability-What Every Lawyer Should Know, 50 Neb.L.Rev. 415 (1971)). The Uniform Commercial Code and general contract law recognize implied warranties of merchantability and fitness for a particular purpose. If the work or product supplied is faulty, these implied warranties may be breached, as well as any express warranties made by the parties during their bargaining process. In the absence of damage to other property or persons, the costs resulting from the faulty work will not be covered by the CGL policy. Id. " [A] general liability policy is not a form of performance bond, product liability insurance, or malpractice insurance." Westman Indus. Co. v. Hartford Ins. Group, 51 Wash. App. 72, 80, 751 P.2d 1242 (citing Indiana Ins. Co. v. DeZutti, 408 N.E.2d 1275, 1279 (Ind.1980), rev. denied, 110 Wash. 2d 1036 (1988).

When a craftsman applies stucco to an exterior wall of a home in a faulty manner and discoloration, peeling and chipping result, the poorly-performed work will perforce have to be replaced or repaired by the tradesman or by a surety. On the other hand, should the stucco peel and fall from the wall, and thereby cause injury to the homeowner or his neighbor standing below or to a passing automobile, an occurrence of harm arises which is the proper subject of risk-sharing as provided by the type of policy before us in this case. [I]njury to persons and damage to other property constitute the risks intended to be covered under the CGL.

Weedo, 405 A.2d at 791-92. Although the policy apparently should be interpreted according to Missouri law, Missouri case law is consistent with the case law of other jurisdictions on this question. See American Family Mutual Ins. Co. v. Ragsdale Concrete Finishing, Inc., 725 S.W.2d 623, 624 (Mo.App.1987).



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Circuit Rule 36-3