Damage to Correctly Installed Pipes not Damage to "Product or Completed Work of the Insured"

The recent case of State Auto. Mut. Ins. Co. v. Old Republic Ins. Co. decided by Judge Richard Bennett of the Maryland Federal District Court involves a fascinating analysis of a Maryland commercial general liability insurance policy. At issue was an insurer's duty to pay attorney's fees to defend against a lawsuit when an HVAC system went bad. In this case, otherwise non-defective components in the HVAC system, such as the pipes installed by a contractor, allegedly suffered damage due to a sub contractor's failure to treat the HVAC water. This damage resulted in loss of use of the affected pipes and other HVAC components. There was no evidence that the contractor expected that the non-defective pipes and other HVAC components would incur damage from untreated water. The court held that these events constituted an "occurrence" under the policy. As a result of this finding, the insurer was required to pay attorney's fees of the contractor despite the fact that the contractor had installed the HVAC system. 

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