Low, Ball & Lynch’s

WEEKLY LAW RESUME

June 3, 2004 Issue      By: Raymond Coates

Coverage - Property Damage - Construction Defect

F&H Construction v. ITT Hartford Insurance Company of the Midwest

Court of Appeal, Third District

(May 5, 2026)

The issue of what constitutes "property damage" in a construction defect setting can often be a difficult issue.  This case examines that question where there is no physical injury caused to property by a claimed defect, but there is additional expense incurred to accommodate a defective design.

F&H Construction contracted with Contra Costa Water District to build a pumping plant.  F&H subcontracted with L. O'Reilly & Sons, Inc., to supply 113 pile cap extensions to be welded into place on steel composite piles, which were then driven into the ground.  The specifications for the pile caps required them to be fabricated with grade A-50 steel.  Contrary to the specifications, O'Reilly manufactured and delivered grade A-36 steel caps.  When F&H became aware of the difference in steel caps, all the piles had been driven into place, and most of the caps had been welded onto the piles.  The caps were inadequate for the purpose of supporting the pumping facility.  F&H modified the existing caps to meet the design requirements.  This required modifications to both the caps in place and those that had not yet been installed.  The project was completed without damaging or weakening the piles in any way.

F&H sued O'Reilly seeking to recover damages for the modification.  O'Reilly did not respond to the complaint, and a default judgment of $243,064.37 was entered.  F&H then sued ITT Hartford Insurance Group (Hartford), insurer for O'Reilly, seeking to recover the amount of the default judgment.  On cross-motions for summary judgment, the trial court granted Hartford's motion.  Judgment was entered in favor of Hartford.  F&H appealed.

The Court of Appeal affirmed.  The issue on appeal turned primarily on whether there was "property damage."  The Court noted that a liability policy is not a performance bond or a warranty of the contractor's performance.  In this case, the only claim was for the modification of the pile caps.  The Court stated this was not property damage because it consisted of intangible economic damages rather than damages to tangible property.  There was no damage to the piles or to any other property.  Rather, the piles were inadequate for their intended purpose.  The Court rejected the argument that "property damage" included diminution in the value of a building resulting from the incorporation of a defective component.  The Court stated that cases that have so held were based upon a pre-1973 definition of "property damage" which did not include the term "physical" in its definition of the injury to property required.  This word was added in 1973, and courts have interpreted it to mean there is no coverage for economic loss.  The Court therefore held that welding lower grade pile caps to the drilling piles did not constitute physical injury to tangible property where the only injury shown was that the welded structure failed to perform as intended.

Further, it did not constitute loss of use of tangible property that was not physically injured.  The Court stated this term means the rental value of similar property where a plaintiff has been deprived of the use of his own property.  In this case, F&H did not seek damages for the rental value for the loss of use of the facility during the time period modifications were made to the pile caps or even for the period of time caused by the delay.  The reason for this was because the project was completed on time.  The costs incurred for repair and modification of the defective caps were unrelated to the rental value.

The Court concluded by noting that liability insurance does not cover inferior or defective workmanship.  The trial court properly granted summary judgment to Hartford.  The judgment was therefore affirmed.

COMMENT

This case follows the traditional view that "property damage" normally does not include, under the post-1973 policies, the incorporation of a defective product into a completed project.  It thus follows the traditional view of what constitutes "property damage." 

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