The underlying complaint in Sharp Plumbing v. National Fire & Marine Ins. Co. 2016 WL 860415 (March 7, 2016 9th Cir.) sought damages due to leaks, restricted water flow and pipe breakage caused by dezincification of water that flowed through the insured’s plumbing fittings. The insurer denied coverage for class action claims against the insured based on the business risk exclusion and subsequently prevailed on summary judgment.
While the insured agreed that third-party property damage was required to trigger coverage under the general liability insurance policy, the insured claimed that water was “damaged” due to zinc contamination. In reviewing the order granting summary judgment in favor of the insured, the 9th U.S. Circuit Court of Appeals found there were no allegations, or evidence, that the water was somehow “adulterated” as a result of zinc in the water. Further, there were no allegations of damage caused by the leaking pipes. Thus, the ruling by the U.S. District Court in Nevada that the policy unambiguously excluded coverage was affirmed on appeal.
Further, the 9th Circuit rejected the insured’s claims for bad faith and violation of Nevada’s Unfair Claims Practices Act. The court found that the insured failed to comply with statutory “proof of loss” requirements and there was no breach of the duty to settle a claim within policy limits. First, the claim was not covered. Second, the insurer ultimately settled the class action within policy limits. The court noted that the insured could not point to any Nevada law to support a claim for bad faith refusal to settle in the absence of coverage, much less where there is a settlement within limits.
Tressler Comments
Claims involving allegedly defective pipes often result in coverage disputes where evidence, or at least allegations, of third-party property damage are lacking. In this case, an expert affidavit regarding “dezincification” was insufficient to trigger coverage because there was no evidence that zinc passing through the pipes was harmful. Whether coverage is triggered in a particular case can depend on the plaintiff attorney’s skill in pleading facts and damages because of damage to property other than the insured’s allegedly defective work or product.