Swa Painting, Inc. v. Golden Eagle Ins. Co.

Summary

The Ninth Circuit reversed a district court judgment holding that a commercial general liability policy covered losses arising from defective paint sold by the insured. The court held that the policy’s impaired-property exclusion applied because the homes were restored to use by replacing the defective paint with sealant and new paint, and therefore the insurer was not liable for any part of the stipulated settlement.

Holdings

1. The losses were covered under the policy's property-damage clause because the policy defined property damage to include loss of use of tangible property that was not physically injured, and the homeowners lost use of their homes while the walls were repainted.
2. The impaired-property exclusion barred coverage because the homes were restored to use by replacement of CMS's defective paint with sealant and new paint.
3. The court did not need to decide whether Golden Eagle could challenge the reasonableness of the stipulated settlement because Golden Eagle was not liable for any part of the settlement.

Questions Presented

1. Whether the losses resulting from defective paint constituted property damage covered by CMS's commercial general liability policy.
2. Whether the policy's impaired-property exclusion applied because the homes were restored to use by replacement of the defective paint with sealant and new paint.
3. Whether Golden Eagle could challenge the reasonableness of the stipulated settlement.

Disposition

reversed_and_remanded