Opinion ID: 782270
Heading Depth: 2
Heading Rank: 1

Heading: Error, omission or deficiency in design, plans, specification engineering or surveying;

Text: 13 B. Faulty or defective workmanship, materials and supplies; This exclusion shall not apply to the mechanical breakdown of: 14 (1) any boiler, pressure vessel, refrigerating system or any piping and accessory equipment or; 15 (2) any electrical or mechanical machine or apparatus used for the generation, transmission or utilization of mechanical or electrical power; which has been installed, fully tested and contractually accepted by the Named Insured and which is being or has been operated at the insured location, in the capacity for which it was designed, as part of the Named Insured's normal production process or processes. 16 On October 15, 1999, the City mailed Indemnity a notice of claim letter, which specified as the loss the faulty welds on the lower section of the economizer. Indemnity replied on January 7, 2000 that its review of the matter found coverage to be in question due to the Policies' exclusions, including those for inherent vice, latent defect, and any quality in property which causes it to damage or destroy itself. The letter expressly reserved all rights and defenses. 17 On April 13, 2000, the City made an additional claim for the middle and upper sections of the economizer. On April 17, Indemnity replied that its investigation was winding to a close and a decision on the City's claims would be reached within thirty days. Indemnity had not yet made a claim determination on May 24, 2000, when this lawsuit was filed in the United States District Court for the District of Vermont. 18 The City's complaint sought damages from five separate insurance companies, each of which had insured the generator at one time or another between its installation and the initiation of the suit. The defendants each moved and the City cross-moved for summary judgment. The district court analyzed the policies separately and concluded, for different reasons in each case, that none covered the City's claimed losses. See City of Burlington v. Hartford Steam Boiler Inspection and Ins. Co., 190 F.Supp.2d 663 (D.Vt.2002). The City appeals only the ruling on the Indemnity Policies. 19 The court held that coverage was precluded by the Policies' inherent vice and latent defect exclusions. 1 It focused on the term latent defect, which the Policies did not define and which Vermont courts have yet to consider in the context of an all-risk insurance policy. The district court observed that, though some courts have deemed the term ambiguous and therefore construed it in favor of the insured, a majority of courts outside of Vermont have found the term to be unambiguous. Id. at 688-89 (citing cases). It concluded that, given the strong trend of authority, the Vermont Supreme Court would not find the term ambiguous within the context of Indemnity's all-risk policy and would read that term to mean a defect that is hidden, or which could not have been discovered by any known or customary test or examination. Id. at 688-89. The court held that the flaws in the welds were not discoverable upon known and customary inspection, were therefore latent defects, and consequently were excluded from coverage. Id. 689-90. 2 20 The City subsequently moved to alter or amend the judgment and for reconsideration, on the grounds that reconsideration was appropriate since Indemnity had not argued the latent defect exclusion in moving for summary judgment and because that term was in fact ambiguous. In a decision dated May 10, 2002, the trial court granted the motion for reconsideration and, without further explanation, declined to alter its ruling.