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settlementdamagesliabilitycorporation
settlementdamagesliabilityappealwill

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Sola Basic Industries, Inc. v. U. S. Fidelity & Guaranty Co., 90 Wis.2d 641, 280 N.W.2d 211

Facts

Sola Basic Industries, Inc. sold a transformer to Thunder Bay Manufacturing Corporation, which later experienced operational issues. A Sola Basic employee performed negligent repairs on the transformer, leading to further damage and operational downtime for Thunder Bay. Thunder Bay sued Sola Basic for $60,000 in damages, which included costs incurred during the transformer’s repair. Sola Basic settled with Thunder Bay for $20,000 and sought to recover this amount from their insurer, United States Fidelity & Guaranty Company, which denied coverage.

Sola Basic tendered the defense of Thunder Bay's claim to the insurer which denied coverage and refused to defend. Sola Basic settled with Thunder Bay for $20,000, after notifying the insurer of the proposed settlement, and then brought this suit against the insurer to recover the $20,000 and an additional $5,000 in legal fees.

Issue

1. Is the economic loss suffered by a person other than the insured as the result of negligent repair work by the insured on a product originally sold by the insured excluded from coverage by the standard definitions and exclusions in this comprehensive general liability policy of insurance? 2. Did the parties stipulate to damages so as to preclude Sola Basic from recovering prejudgment interest?

1. Is the economic loss suffered by a person other than the insured as the result of negligent repair work by the insured on a product originally sold by the insured excluded from coverage by the standard definitions and exclusions in this comprehensive general liability policy of insurance? 2. Did the parties stipulate to damages so as to preclude Sola Basic from recovering prejudgment interest?

Rule

The court analyzed the definitions and exclusions in the comprehensive general liability insurance policy, determining that coverage exists for damages incurred by third parties due to the insured's negligent actions, provided that the damages do not fall under specific exclusions related to the insured's own products.

The sections of the comprehensive general liability insurance policy pertinent to this appeal are the following: 'Coverage B Property Damage Liability. The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of 'A. bodily injury or 'B. property damage to which this insurance applies, caused by an occurrence, . . . . 'Definitions: 'damages' includes damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage; ' 'property damage' means injury to or destruction of tangible property.

Analysis

The court found that the damages claimed by Thunder Bay were not excluded under the insurance policy's definitions and exclusions. It reasoned that the economic loss incurred by Thunder Bay due to the transformer being out of operation constituted property damage, as it involved additional costs incurred to maintain operations. The court emphasized that the policy covers damages for loss of use of property, and thus, Sola Basic was entitled to coverage for the settlement amount paid to Thunder Bay.

The cost of removing and replacing the transformer was covered liability under the rationale of Geddes & Smith, supra, where recovery was allowed for the costs associated with the removal and replacement of the defective doors. In addition, the removal of the damaged transformer rendered useless Thunder Bay's electric furnaces, and it was forced to incur additional costs to keep operating. These costs do not represent lost profits, but are a measure of the diminution to the value of the plant caused by the malfunctioning transformer.

Conclusion

The court affirmed the lower court's judgment in favor of Sola Basic, holding that the insurer was liable for the damages incurred due to the negligent repair work. However, it ruled that Sola Basic could not recover prejudgment interest due to the stipulation made regarding damages.

Judgment affirmed.

Who won?

Sola Basic Industries, Inc. prevailed in the case because the court determined that the economic loss suffered by Thunder Bay was covered under the insurance policy, despite the insurer's claims of exclusion.

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