Magnetic field created by loose bolt excluded coverage for installation company

A California court of appeal affirmed summary judgment in favor of an insurance company when a loose bolt that caused medical equipment to malfunction was the likely result of the insured’s shoddy work.

In the underlying lawsuit, a doctor hired the insured, All Green, to perform electrical work in preparation for the installation of mammography unit in the doctor’s office.

In a nutshell, All Green performs the electrical work. The mammography unit is installed but does not work properly. The doctor is told by the installation company that magnetic interference is to blame and suggests moving the unit to another room. No luck. Magnetic field interference still persists. The doctor then installs steel shielding in an attempt to block the magnetic field to no avail. It is only after the doctor retains an electromagnetic field expert (where does one hire an electromagnetic field expert?) that the loose bolt, installed by our unlucky insured All Green, is discovered.

Unsurprisingly, the doctor sues All Green for professional negligence. Also unsurprisingly, All Green tenders the claim to its insurer.

The insurer, however, denied that it had any obligation to defend All Green in the lawsuit, pointing to the “impaired property” exclusion in its policy which reads that coverage does not apply to:

Property damage' to 'impaired property' or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work;' or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms."

The policy did, however, contain an exception to the exclusion above, stating, "[t]his exclusion does not apply to the loss of use of other property arising out of the sudden and accidental physical injury to 'your product' or 'your work' after it has been put to its intended use.”

The insurer argued that only the exclusion applied because ultimately the mammography machine was not damaged, merely temporarily malfunctioning, resulting from the negligent work of All Green.

All Green in response gave two arguments that the court of appeal ultimately shut down.

First, the court rejected All Green’s argument that there were other possible reasons for the bolt being loose and that these contingencies should have triggered a duty to defend. The court reasoned that this argument failed because the important inquiry in determining whether there was a duty to defend was not what ultimately transpired, but the allegation by the doctor, an allegation that falls outside of the policy’s coverage.

Second, the court did not accept All Green’s argument that the exception to the exclusion applied because there was insufficient evidence in the record to suggest that there was a “sudden and accidental physical injury” where the insurer’s duty to defend could be triggered. All Green simply offered hypothetical scenarios in an attempt to find coverage.

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