Lexicon, Inc. v. Ace American Insurance
634 F.3d 423
| 8th Cir. | 2010Background
- Lexicon built six silo storage bins for Nu-Iron in Trinidad under contract; Damus Limited subcontracted fabrication and erection.
- Damus allegedly welded faulty joints; one silo collapsed, damaging nearby equipment and thousands of tons of DRI.
- Lexicon reimbursed Nu-Iron for Damus-related damages and incurred further cleanup and replacement costs.
- Lexicon carried CGL insurance; insurers denied coverage and Lexicon filed suit for breach and declaratory relief.
- District court granted insurers’ summary judgment; court held under Arkansas law defective workmanship is not an occurrence.
- Court reverses in part and remands for further proceedings, recognizing a subcontractor exception may cover some damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does defective subcontractor workmanship constitute an occurrence? | Lexicon argues Damus’s faulty welds cause an occurrence under CGL. | Insurers rely on Holder to hold defective workmanship not an occurrence. | Occurrence includes damages beyond the work product when covered by subcontractor exception (in part). |
| How does the subcontractor exception affect coverage under the your-work exclusion? | Subcontractor exception preserves coverage for damages caused by subcontractor work. | Holder limits coverage by excluding defective workmanship as an occurrence. | Subcontractor exception harmonizes with your-work exclusion to cover some property damage. |
| Are damages to items other than the silo (e.g., DRI, nearby equipment) covered? | Damages beyond the silo are within policy coverage absent an exclusion. | Holder limits coverage to the work product itself; collateral damage may be excluded. | Affirmed for silo damage; reversed for other covered property, remanding for proceedings on balance. |
Key Cases Cited
- Holder v. Essex Ins. Co., 261 S.W.3d 456 (Ark. 2008) (defective workmanship alone not an occurrence)
- Smith v. So. Farm Bureau Cas. Ins. Co., 114 S.W.3d 205 (Ark. 2003) (your-work exclusion and subcontractor exception read together)
- Continental Ins. Co. v. Hodges, 534 S.W.2d 764 (Ark. 1976) (definition of accident and unforeseen events)