Opinion ID: 2831778
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion 28: Predetermined Level of Fitness

Text: Exclusion 28 of Bollinger’s insurance contract with XL provides that it shall not apply to . . . [t]he failure of your products to meet any predetermined level of fitness or performance and/or guarantee of 3 We do not reach other coverage issues raised in XL’s brief and cross-appeal. 5 Case: 14-31283 Document: 00513172762 Page: 6 Date Filed: 08/27/2015 No. 14-31283 such fitness or level of performance and/or any consequential loss arising therefrom. On appeal, Bollinger makes two arguments in support of its contention that this provision does not apply. First, Bollinger argues that Exclusion 28 does not preclude coverage for the claims in the underlying suit because the United States was seeking damages for the entire value of the vessels, not only the “work product” for which Bollinger was responsible. Second, Bollinger argues that the underlying suit did not allege a failure to meet a “predetermined level of fitness.” We conclude, however, that Exclusion 28 applies to the government’s unjust enrichment and negligent misrepresentation claims. The precedent on which Bollinger relies for its first argument is inapposite. In OSCA, for example, the contractor “had only been hired to set a bridge plug inside of an already constructed well, and the allegedly faulty work damaged not only the plug but the entire well[.]” Underwriters at Lloyd’s London v. OSCA, Inc., No. 03-20398, 2006 WL 941794 (5th Cir. Apr. 12, 2006) (per curiam) (unpublished). The insurance policy at issue excluded coverage for claims arising out of the failure of any Insured’s Products or of work . . . by or on behalf of any Insured to meet any warranty or representation by any Insured as to the level of performance, quality, fitness or durability or extent that such liability is for the diminished value or utility of Insured’s Products or work by or on behalf of any Insured[.] Id. at . Such “work product exclusions” typically restrict coverage on the basis of “the well-settled principle that liability policies are not intended to serve as performance bonds.” Rivnor Properties v. Herbert O’Donnell, Inc., 633 So. 2d 735, 751 (La. Ct. App. 1994); see also Old River Terminal Co-op v. Davco Corp. of Tenn., 431 So. 2d 1068 (La. Ct. App. 1983). But work product exclusions do not apply in cases like Hendrix Electric Co. v. Casualty Reciprocal Exchange, 297 So. 2d 470 (La. Ct. App. 1974), in which 6 Case: 14-31283 Document: 00513172762 Page: 7 Date Filed: 08/27/2015 No. 14-31283 [t]he job involved running an underground electrical cable to an existing power distribution panel and installing a new circuit breaker in the panel. An employee accidentally dropped a metal strip and thereby caused a short which started a fire and destroyed the entire panel. The court held that the “damage was not to any ‘work performed on or on behalf of the named insured.’ The damage was to existing property of the Government, that is the panel and attached circuit breakers.” Thus, the court found that the exclusion clearly did not apply. OSCA, 2006 WL 941794, at  (citations omitted) (citing Hendrix Elec., 297 So. 2d at 472); see also Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401 (5th Cir. 1982) (distinguishing cases in which “[w]hat was lost to use in those cases was the insured’s own product”). Bollinger argues that this is a case like OSCA and Hendrix because the United States is not seeking damages for Bollinger’s work or product alone, but for the entirety of the eight vessels that all unexpectedly failed. Because the damage for which the United States seeks to recover is “the result of something” other than its work product, “Exclusion 28 was not triggered.” This argument cannot succeed. As the district court noted, the policy exclusions in those cases did not exempt the insurer from coverage for “consequential damages” arising from the failure of the insured’s work. See, e.g., OSCA, 2006 WL 941794, at . Exclusion 28, by its own terms, exempts claims for damage not only to the insured’s work product but also to things other than the insured’s product. Bollinger’s second argument, that the underlying suit did not allege a failure to meet a “predetermined level of fitness,” relies in part on the district court’s previous dismissal of the underlying suit because the complaint did not, in the court’s words, “allege what the program and contract requirements were for the converted vessels.” See United States v. Bollinger Shipyards, Inc., No. CIV. A. 12-920, 2013 WL 393037, at  (E.D. La. Jan. 30, 2013)). But just before that, the district court wrote, “The United States alleges that one of the 7 Case: 14-31283 Document: 00513172762 Page: 8 Date Filed: 08/27/2015 No. 14-31283 requirements was that Bollinger provide the Coast Guard with a Hull Load and Strength Analysis (‘HLSA’) in order to verify that the modified vessels met the program and contract requirements.” Id. (emphases added). Moreover, the district court was assessing whether the complaint met the FCA’s materiality requirement as codified at 31 U.S.C. § 3729(a)(1)(B). In contrast, the issue in regard to this exclusion is not the FCA claims at all but the unjust enrichment and negligent misrepresentation claims. The United States pled that “Bollinger . . . was responsible for the . . . performance requirements” of the modified boats. Other “requirements” referenced in the complaint include “the required section modulus,” a requirement to comply with American Bureau of Shipping standards, and a requirement to provide a hull strength analysis, which itself was used to determine conformity with “program and contract requirements.” Even if the United States had not alleged sufficient facts to show materiality under the FCA—a determination this court reversed—that would not mean that the complaint did not allege liability because Bollinger’s work failed to meet performance requirements. Citing dictionaries, Bollinger also contends that its “representations” cannot amount to a “predetermination.” The argument is that “representations” are unilateral and “predeterminations” imply bilateral agreement. But “predetermined” means only “established, decided upon, or decreed beforehand.” OED Online, http://www.oed.com/view/Entry/149830. It implies nothing about how a determination comes about, or who has the authority to determine. A single party can “determine” something, and can do so in advance: there is nothing inherently bilateral about predetermination. And even if there were, the complaint lays out straightforwardly that Bollinger failed to meet a requirement that the parties together determined in advance. The Deepwater contract required the vendor to submit a hull strength analysis, which stated the required longitudinal strength that Bollinger’s work 8 Case: 14-31283 Document: 00513172762 Page: 9 Date Filed: 08/27/2015 No. 14-31283 failed to meet. As the district court noted, “the complaint makes plain that Bollinger, the party responsible for ‘performance requirements,’ recognized and communicated from the earliest stages of the project that the ‘ABS required section modulus’ was 3113 cubic inches.” Bollinger Shipyards, 57 F. Supp. 3d at 755 (footnotes omitted). Thus, however many parties were involved in the predetermination, this was a predetermined level of fitness. 4