When is an Additional Insured Not an Additional Insured? When the Judge Says So

A U.S. district judge ruled the Insurance Company of the State of Pennsylvania (ICSOP) does not have to cover costs accrued by Starline Windows Inc. following homeowner claims of damaged insulating glass units (IGUs) at a San Diego condominium tower.

The suit stems from a 2003 project in San Diego at The Grande at Santa Fe Place. Starline subcontracted with Bosa Development California Inc. to furnish and install a window wall system, including IGUs covered under Starline’s 10-year limited warranty. Starline subcontracted with Star Team Installations for the installation.

Sealant Failure

In 2014, Starline was alerted that numerous homeowners at the condominium served notice of claims concerning the alleged failure and migration of polyisobutylene (PIB) sealant within the IGUs. This resulted in visual obstructions, homeowners claimed. “Some units experienced the PIB migrating onto the perforated spacer bars, which can impair the
desiccant’s ability to absorb moisture and prevent fogging inside the IGUs,” court documents submitted by the plaintiff state.

The document adds that the affected PIB changed over time, losing molecular weight due to ultraviolet radiation from exposure to sunlight. As it liquified, it moved from its original position between the space bars and glass edges. In some cases, it blocked viewing areas of the glass surfaces and changed color, becoming “grayish and somewhat opaque.” The homeowners’ claims did not involve physical injury to any property other than the IGUs.

Bosa had purchased a primary Owner Controlled Insurance Program (OCIP) policy underwritten by Liberty Mutual Fire Insurance Company “to cover itself and its subcontractors for the course of construction and completed operations liability regarding Grande North at The Grande at Santa Fe Place.” Bosa also purchased a first layer of “Follow Form Excess Liability” coverage from ICSOP.

Starline executed a repair agreement with Bosa on June 22, 2014, under which the company agreed to replace certain IGUs in accordance with the warranty. The company also sought defense and indemnity from ICSOP for the homeowners’ claims, but the insurer failed to respond, court documents state.

Starline sued ICSOP in April 2021 for breach of contract for failure to defend and indemnify the company. It also sought declaratory relief.

In July 2022, ICSOP filed a motion for summary judgment. It contended window claims are not covered under the OCIP policy and it does not owe a duty to indemnify Starline because “the window claims indisputably do not involve covered ‘property damage’ and are otherwise excluded by the business-risk exclusions in the OCIP policy.”

ICSOP added that as a supplier of the window wall system, “Starline does not qualify as an additional named insured under the OCIP policy, but rather is considered an additional insured for faulty installation work performed by its subcontractor, Star Team.”

Ruling

U.S. District Judge Ruth Bermudez Montenegro rejected Starline’s argument that the policy’s provision eliminating coverage for “your products” restored coverage for the claims. She wrote in the court documents that a policy issued to the condo’s contractor does not cover claims against Starline.

Montenegro added that under California law, “the prevailing view is that incorporating a defective component or product into a larger structure does not constitute property damage unless and until the defective component causes physical injury to tangible property in at least some other part of the system.

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