It's impossible to know from a recent media article on an insurance coverage dispute what the material terms and conditions provided for in a policy between Liberty Mutual Insurance Co. and a general construction contractor tasked with building an emergency water system for the city of San Diego.
All the article states is that Liberty ultimately paid out on a breach of contract claim filed by a city agency against the contractor.
Another insurance company involved in the matter -- National Union, an arm of mega-insurer AIG, which provided so-called "excess coverage" for the contractor -- declined to do so, choosing instead to fight the coverage demand in court. It did so based on the argument that payment under the policy was not required owing to two explicit exclusions that relieved it of responsibilities.
A lower federal court agreed with that assessment in the first instance.
And, recently, a three-judge panel from the 9th U.S. Circuit Court of Appeals endorsed the lower court's ruling, thus providing National Union a major victory based on its policy-exclusion claims.
The appellate tribunal acknowledged that, while "exclusionary clauses are interpreted narrowly against the insurer" in California, examination of the policy language left no doubt that National Union's duty to pay did not apply in the instant case. The policy clearly cited a payment exemption in instances where property damage or substandard performance owed to the contractor's performance and where repair costs were necessitated owing to improperly performed work.
That was proven to be the case, the court stated. As such, the panel excused National Union from all payment duties under the policy.