Is That Your Product For Insurance Purposes?

Is That Really Your Product?

By: Harry Malka, Esquire

Your Construction Law FirmTM

In the recent case of Liberty Mut. Fire Ins. Co. v. MI Windows & Doors, Inc., 2D12-2793, 2013 WL 4734045 (Fla. 2d DCA, September 2013), the Court of Appeals for the Second District of Florida addressed the issue of insurance coverage for altered products. Interestingly, there are very few cases in Florida addressing this issue.

MI Windows & Doors, Inc. ("MI") manufactures windows and doors. MI sold windows and doors to All Seasons, a window and door installer. In turn, All Seasons entered into a subcontract to install MI's products in five condominium projects under construction. In three of the condominiums, All Seasons manufactured and installed transoms running atop the sliding-glass doors. This change allegedly weakened the structural integrity of the doors.

After several hurricanes damaged the MI products, the condominium associations sued MI and All Seasons seeking damages, alleging that the MI products were defective. MI settled the lawsuits with the condominium associations and then sued its own insurance company, Liberty Mutual Fire Insurance Company ("Liberty") to recover the cost of repairing and replacing the defective doors or windows at each condominium.

Liberty denied coverage based on the "Your Product" exclusion in the policy. Essentially, this exclusion is found in most CGL Policies and bars coverage for damage to any of the insured's products. The trial court entered a final summary judgment in favor of MI, concluding that there was insurance coverage because the "Your Product" exclusion did not apply to the doors with transoms. The trial court reasoned that these doors were so materially changed by others after the sale by the addition of the transoms that they were no longer MI's product. Dissatisfied with the result, Liberty appealed.

The Court of appeals reversed the trial court's ruling, holding that the cases relied upon by the trial court were not applicable. For instance, the trial court relied on Imperial Casualty & Indemnity Co. v. High Concrete Structures, Inc., 858 F.2d 128 (3d Cir.1988), where the Third Circuit Court of Appeals held that when the insured's steel sheets were stamped into washers by the purchaser, they became "a new product." The trial court also relied on Pittsburgh Plate Glass Co. v. Fidelity & Casualty Company of New York, 281 F.2d 538 (3d Cir.1960), where that Court held that the "Your Product" exclusion did not apply to paint which had been baked into jalousies, because it was "no longer identifiable as a separate entity" and was covered by the liability insurance policy.

In this case, the Court found that the "Your Product" exclusion applied because the addition of transoms to the sliding glass doors did not "fundamentally change" the nature and function of those doors. Unlike the cases cited by the trial court, the doors in this case "were not made into something else." The doors retained their identity after being hung on transoms. They continued to operate as sliding glass doors.

This case demonstrates how a product manufacturer may be held liable for damages caused by its products - even when the product has been altered by others after the sale. To make matters worse, insurance policies may exclude coverage. In this case, MI paid the associations a total of $3.4Million to settle the defective-product lawsuits and had no insurance coverage.