Insurance Claims for Solar Panel Defects

Because solar panels are built into real property, insurance claims will be analyzed much as they have been for other waves of defective building materials. Over the last 25 years, these have included Chinese Drywall, Exterior Insulation Finishing Systems (EIFS), polybutylene plastic plumbing systems that leaked or burst after installation, and asbestos-containing building materials (ACBM), among many others.

Unfortunately, this extensive history indicates that insurance companies will refuse to honor coverage on these many of these claims and will aggressively fight when policyholders are forced to sue for their coverage benefits. If you're a solar energy lawyer or in-house counsel, so far spared the intellectual delights of the recurring coverage battles over construction-related claims, here is an introduction to the likely insurance industry arguments on the biggest issues and the policyholders' responses to them.

The 'Business Risk Doctrine'

Insurance Companies: CGL policies should not and do not cover property damage to the policyholder's own work or product and were never intended to do so. See, e.g., Modern Equipment Co. v. Continental Western Ins. Co., Inc., 355 F.3d 1125, 1129 (8th Cir. 2004) (Iowa law) (“the purpose of a commercial general liability policy ' is to provide coverage for tort liability for physical damage to others, and not to insulate an insured from economic losses flowing from breach of its contractual duties.”); Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 405 A.2d 788, 791'92 (1979) (“[CGL] coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.”).

Policyholders: The provisions of the policy fairly read as a whole, the drafting history of the policy, and the industry's own, current interpretation of it all contradict this simplistic notion. CGL policies intentionally provide a significant measure of malpractice coverage to their policyholders. See, e.g., Greystone Const., Inc. v. National Fire & Marine Ins. Co., 661 F.3d 1272, 1288 (10th Cir. 2011) (Colo. law) (“[T]he degree of business risk that is covered by a CGL policy is a negotiated agreement between contractual parties, which should not be disturbed by a court's view of whether business-risk coverage is appropriate.”).

The 'CGL Policies Aren't Performance Bonds' Argument

Insurance Companies: CGL policies aren't performance bonds and therefore shouldn't be interpreted to cover the policyholder's defective work or product. See, e.g., George A. Fuller Co. v. U.S. Fid. & Guar. Co., 200 A.D.2d 255, 613 N.Y.S.2d 152, 155 (App.Div.1994) (“To interpret the policy as did the [lower court] would transform [the insurer] into a surety for the performance of [the insured's] work. [The insurer's] liability policy was never intended to insure [the insured's] work product or [his] compliance, as a general contractor or construction manager, with its contractual obligations.”); Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co., 589 Pa. 317, 908 A.2d 888, 899 (2006) (“[F]aulty workmanship ' claims simply do not present the degree of fortuity contemplated by the ordinary definition of 'accident' or its common judicial construction in this context. To hold otherwise would be to convert a policy for insurance into a performance bond.”).

Policyholders: Insurance policies should be interpreted according to their terms, not simplistic rules of thumb. See, e.g., Greystone Const., Inc. v. National Fire & Marine Ins. Co., 661 F.3d 1272, 1288'89 (10th Cir. 2011) (Colo. law) (“[E]ven if the CGL policy does share some characteristics of a performance bond, that alone is an insufficient reason to ignore the plain language and intent of the policy.”). Again, the CGL policy intentionally contains a significant malpractice component.

The 'Legally Obligated' Requirement

Insurance Companies: Tort claims, but not contract or warranty claims, are legal obligations, such that the latter two cannot satisfy the policy's “legally obligated” requirement. See, e.g., Action Ads, Inc. v. Great Am. Ins. Co., 685 P.2d 42, 44-45 (Wyo.1984) (“We conclude that the coverage clause at issue in the present case encompasses liability which the law imposes on all insureds for their tortious conduct and not on the liability which a particular insured may choose to assume pursuant to contract. Action Ads' potential liability in this case stemmed not from its own negligent behavior, but from a contractual obligation.”).

Policyholders: “Legally obligated” simply means that the claim against the policyholder must be adjudicated to the point that a binding judgment, arbitration award, or settlement has been entered against the policyholder before the insurance company is required to pay the claim. See, e.g., Vandenberg v. Superior Court, 21 Cal. 4th 815, 88 Cal. Rptr. 2d 366, 383, 982 P.2d 229 (1999) (a “reasonable lay person would certainly understand 'legally obligated to pay' to refer to any obligation which is binding and enforceable under the law, whether pursuant to contract or tort liability.”).

The 'Occurrence' Requirement

Insurance Companies: An “occurrence” requires an accident, and the faulty workmanship of manufacturing or installing the solar panels is the product of deliberate acts, and as such, does not qualify as an accident. See, e.g., Town & Country Property, L.L.C. v. Amerisure Ins. Co., 111 So.3d 699, 706 (Ala. 2012) (“faulty workmanship itself simply does not constitute an accident or 'occurrence' within the meaning of a comprehensive general-liability insurance policy ('a CGL policy'), such as the policy here”).

Policyholders: Our actions may have been deliberate, but we certainly did not foresee any appreciable chance of the property damage that was later manifested in the panels, and that's an “accident.” See, e.g., Lamar Homes, Inc. v. Mid'Continent Casualty Co., 242 S.W.3d 1, 8 (Tex.2007) (“a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.”).

The 'Property Damage' Requirement

Insurance Companies 1: Damage to or deterioration of the policyholder's own work or product itself does not satisfy the “property damage” requirement. See, e.g., Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294, 1308 (11th Cir. 2012) (“this defect alone cannot constitute property damage ' because [claimant] seeks only to remedy the defect ' in effect, to obtain the non-defective roof that should have been built in the first place ' there is none”). As such, only damage that is done to property that is not the work or product of the policyholder is covered.

Policyholders 1: Physical damage to or deterioration of the panels clearly satisfies the policy's “physical injury to tangible property” definition of “property damage.” See, e.g., Diamaco, Inc. v. Aetna Cas. & Sur. Co., 97 Wash. App. 335, 983 P.2d 707, 709 (Div. 1 1999), as amended on reconsideration, (Oct. 12, 1999) (“The policy language, fairly read, does not support Travelers' contention that the term 'property damage' is limited to 'property of another'”).

Insurance Companies 2: The majority of the damages sought in these cases are for economic injuries, not damages for “property damage,” e.g., decreased energy output. See, e.g., Transportation Ins. Co. v. AARK Const. Group, Ltd., 526 F. Supp. 2d 350, 357 (E.D. N.Y. 2007) (“an 'occurrence' of property damage under a CGL policy cannot exist where a general contractor's 'negligent acts only affect[ ] [the property owner's] economic interest in the building.'”).

Policyholders 2: CGL policies cover not only property damage, but also any and all damages “because of” covered property damage, which also include all damages arising out of the “property damage,” including consequential economic damages. See, e.g., Anthem Electronics, Inc. v. Pacific Employers Ins. Co., 302 F.3d 1049, 1057 (9th Cir. 2002) (“We decline to hold that coverage is precluded simply because the extent of [property] damage is expressed as economic loss.”).

Insurance companies 3: The costs to repair or replace those panels that have not yet failed but are likely to do so, because they contain a known problem, do not satisfy the “property damage” requirement, because the panels have not yet experience any physical injury. See, e.g., Fireman's Fund Ins. Co. v. Hartford Fire Ins. Co., 73 F.3d 811, 815 (8th Cir. 1996) (cost of repairs to fire sprinkler supports not covered as “property damage” when repairs were undertaken to prevent flooding, but no flooding had occurred prior to the repairs).

Policyholders 3: The policy covers not only “property damage,” but also all consequential “damages because of property damage.” Such preventative costs are “damages because of property damage” that would occur if such measures weren't taken. See, e.g., Ellsworth-William Co-op. Co. v. United Fire & Cas. Co., 478 N.W.2d 77, 81 (Iowa Ct. App. 1991) (the court held that the cost of removing grain from defectively built storage bins was covered, reasoning: “Clearly, [the insurer] would be liable for the cost of the grain itself if the grain did spoil. This would be 'injury of tangible property' covered by the policy. Additionally, such rotten grain would still have to be removed.”).

The Contractual Liability Exclusion

Insurance Companies: This exclusion for liability that is “contractually assumed” bars coverage for all breach of contract and breach of warranty claims. See, e.g., Younglove Const., LLC v. PSD Development, LLC, 767 F. Supp. 2d 820, 826 (N.D. Ohio 2011) (“the claim for damages resulting from the loss of storage space ' sounds in contract ' and the contractual liability exclusion therefore does apply”).

Policyholders: According to the policy drafters' intent, current insurance industry usage, and the most reasonable interpretation of the exclusion's wording, “contractually assumed” liability refers to the policyholder's assumption of a third party's liability, such as by indemnity agreement. So, the exclusion does not apply to liability for ordinary breach of contract and breach of warranty. See, e.g., American Family Mut. Ins. Co. v. American Girl, Inc., 16673 N.W.2d 65, 81 (2004) (“We conclude that the contractually-assumed liability exclusion applies where the insured has contractually assumed the liability of a third party, as in an indemnification or hold harmless agreement; it does not operate to exclude coverage for any and all liabilities to which the insured is exposed under the terms of the contracts it makes generally.”)

The Your Product Exclusion

Insurance Companies: This exclusion bars coverage for property damage to the manufacturers' or distributers' own products. See, e.g., ABT Building Products Corp. v. National Union Fire Ins. Co. of Pittsburgh, 472 F.3d 99, 118 (4th Cir. 2006) (exclusion applied to deterioration of manufacturer's defective wood siding after it had been applied to claimants' homes).

Policyholders: Once the panels were combined with the on-site labor of building them into the real property, they ceased being “products” in that sense, all in accordance with the definition of “your products” in the policy itself, which says the exclusion cannot apply to real property. See, e.g., Auto-Owners Ins. Co. v. American Building Materials, Inc., 820 F. Supp. 2d 1265, 1272 (M.D. Fla. 2011) (“because the [policyholder's] drywall became “real property” once it was installed, it is not within the definition of “your product” under the policy], and the exclusion] does not apply.”).

The Your Work Exclusion

Insurance Companies: This exclusion bars coverage for property damage to the panel installation contractor's own work. See, e.g., Home Owners Warranty Corp. v. Hanover Ins. Co., 683 So. 2d 527, 530 (Fla. Dist. Ct. App. 3d Dist. 1996) (exclusion applied to policyholder's work even though the work was performed through subcontractors).

Policyholders: By an exception at the end of the exclusion, it cannot apply to property damage to either their subcontractors' work or where the property damage arises from subcontractors' work. See, e.g., Forrest Const., Inc. v. Cincinnati Ins. Co., 703 F.3d 359, 364 (6th Cir. 2013) (“the 'your work' exclusion does not apply to work done by subcontractors”).

The Impaired Property Exclusion

Insurance Companies: This exclusion applies to “property damage” to “impaired property” or property that has not been physically injured, arising out of ' [a] defect, deficiency, inadequacy or dangerous condition in “your product” or “your work” ' .

Policyholders: The exclusion is incomprehensible, ambiguous, and therefore unenforceable. See, e.g., Washington Energy Co. v. Century Sur. Co., 407 F. Supp. 2d 680, 695 (W.D. Pa. 2005) (“the language of the impaired property exclusion, as applied to the facts of this case, is ambiguous and therefore, must be construed in favor of the insured.”)

The Product Recall Exclusion

Insurance Companies: The liability here is for a product recall; therefore, this exclusion applies. See, e.g., Hathaway Development Co., Inc. v. Illinois Union Ins. Co., 274 Fed. Appx. 787, 792 (11th Cir. 2008) (exclusion applied to cost to repair defects in general contractor's apartment complexes.).

Policyholders: A product recall involves withdrawing products that have not yet failed but which are being withdrawn from use because of a known or suspected defect that might cause them to fail in the future. Most of these claims only involve solar panels that have actually failed, so the exclusion cannot apply. See, e.g., Auto-Owners Ins. Co. v. NewMech Cos., 678 N.W.2d 477, 485 (Minn. Ct. App. 2004) (“The units were never withdrawn from the market in the sense of the policy; rather, they were just repaired ' [So, the exclusion] does not apply.”).

Analysis

How much liability will be covered in the end? That depends on too many factors to give a general prediction. The insurance-side arguments will be weak in most cases, but on any given claim an insurance company is likely to raise numerous coverage defenses, giving courts many opportunities to become confused and make the wrong decision on a critical issue. (That is, of course, why insurance companies raise a long list of issues.) For policyholders, however, it does generally pay to push back against these asserted coverage defenses, in many cases following through with litigation.

The various U.S. jurisdictions are deeply divided over some of the coverage issues discussed here, so choice-of-law will often be the first bone of contention. Once notice of the claim is given to the insurance company, in many cases both parties will feel compelled to race to file the first lawsuit over coverage in their preferred jurisdiction. Therefore, policyholders expecting big claims should have their coverage counsel in place and on top of the issues well before those claims come in, and be prepared to furnish prompt notice to the insurance company. That way, a quick but well-analyzed response can be executed when the claims do come in ' which in some cases will mean filing suit almost as fast as filing notice.

Once a claim is made against a policyholder, some jurisdictions are very strict in their enforcement of the policy's “timely notice” provision requiring policyholders to notify their insurance companies within a fixed period, sometimes as short as a week, after learning about a potential loss or liability. So, it is very important that policyholders be prepared to give that notice promptly.

The fight over coverage will be hard on small policyholders that do not have the legal sophistication or the financial and personnel resources to simultaneously fight the wave of liability claims and intelligently pursue their coverage claims. Larger policyholders that have those resources will probably fare well to reasonably well in the end ' but in most cases, only after a long fight.

Switching perspectives, larger claimants that expect that their targeted solar panel defendants will be insolvent before they can collect on their claims should tailor their claims toward the defendants' insurance coverage, as insurance coverage will usually survive bankruptcy as a source for satisfying judgments against insolvent policyholders. Of course, artful targeting works much better if the coverage analysis is done before the liability suit is filed.

For all concerned, anticipation and thorough advance preparation may prove decisive in determining the extent of coverage and the outcome of coverage disputes.

Scott C. Turner ([email protected]), is of counsel at Anderson Kill, a national firm that exclusively represents policyholders. He is a construction insurance attorney with over 20 years of experience securing insurance recoveries for property losses and in securing defense and indemnification for liability resulting from construction disputes and defects. Mr. Turner is the author of the two-volume legal treatise, Insurance Coverage of Construction Disputes (2nd ed. Thomson Reuters Westlaw 2013).

Recent reports of a quality crisis in the solar panel industry, following years of exploding growth and intense price pressure, have raised the specter of a wave of litigation. The most notable source of such allegations is a recent New York Times article (“Solar Industry Anxious over Defective Panels,” May 28, http://nyti.ms/1alDtFY), in which reporter Todd Woody cited multiple reports of double-digit defect rates for installed components.

While aggregate industry figures are hard to come by, industry participants have not denied that problems exist. In response to the Times article, SolarWorld, which claims to be the largest U.S. solar panel manufacturer, warned that “without urgent attention, reports of increasing defects among crystalline silicon solar panels could undermine low and stable defect rates that the industry achieved in mass production beginning in the 1970s.” See http://yhoo.it/18sefQC%20'(last viewed Sept. 4, 2013).

If the problems are as widespread as the Times article indicates, lawsuits could be forthcoming against solar panel manufacturers, the component manufacturers that supplied parts or materials used in the making of those panels, the panel distributors and dealers, and the contractors who installed the panels. As many of the defective components have been manufactured by companies now bankrupt, and many faulty components derive from small Chinese manufacturers from which it would be difficult to obtain redress, insurance recovery is likely to loom large in these struggles. What can businesses facing liability and loss from faulty solar construction expect when they turn to their insurance companies for help with these claims?

Because solar panels are built into real property, insurance claims will be analyzed much as they have been for other waves of defective building materials. Over the last 25 years, these have included Chinese Drywall, Exterior Insulation Finishing Systems (EIFS), polybutylene plastic plumbing systems that leaked or burst after installation, and asbestos-containing building materials (ACBM), among many others.

Unfortunately, this extensive history indicates that insurance companies will refuse to honor coverage on these many of these claims and will aggressively fight when policyholders are forced to sue for their coverage benefits. If you're a solar energy lawyer or in-house counsel, so far spared the intellectual delights of the recurring coverage battles over construction-related claims, here is an introduction to the likely insurance industry arguments on the biggest issues and the policyholders' responses to them.

The 'Business Risk Doctrine'

Insurance Companies: CGL policies should not and do not cover property damage to the policyholder's own work or product and were never intended to do so. See, e.g., Modern Equipment Co. v. Continental Western Ins. Co., Inc. , 355 F.3d 1125, 1129 (8th Cir. 2004) (Iowa law) (“the purpose of a commercial general liability policy ' is to provide coverage for tort liability for physical damage to others, and not to insulate an insured from economic losses flowing from breach of its contractual duties.”); Weedo v. Stone-E-Brick, Inc. , 81 N.J. 233, 405 A.2d 788, 791'92 (1979) (“[CGL] coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.”).

Policyholders: The provisions of the policy fairly read as a whole, the drafting history of the policy, and the industry's own, current interpretation of it all contradict this simplistic notion. CGL policies intentionally provide a significant measure of malpractice coverage to their policyholders. See, e.g., Greystone Const., Inc. v. National Fire & Marine Ins. Co. , 661 F.3d 1272, 1288 (10th Cir. 2011) (Colo. law) (“[T]he degree of business risk that is covered by a CGL policy is a negotiated agreement between contractual parties, which should not be disturbed by a court's view of whether business-risk coverage is appropriate.”).

The 'CGL Policies Aren't Performance Bonds' Argument

Insurance Companies: CGL policies aren't performance bonds and therefore shouldn't be interpreted to cover the policyholder's defective work or product. See, e.g., George A. Fuller Co. v. U.S. Fid. & Guar. Co. , 200 A.D.2d 255, 613 N.Y.S.2d 152, 155 (App.Div.1994) (“To interpret the policy as did the [lower court] would transform [the insurer] into a surety for the performance of [the insured's] work. [The insurer's] liability policy was never intended to insure [the insured's] work product or [his] compliance, as a general contractor or construction manager, with its contractual obligations.”); Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co. , 589 Pa. 317, 908 A.2d 888, 899 (2006) (“[F]aulty workmanship ' claims simply do not present the degree of fortuity contemplated by the ordinary definition of 'accident' or its common judicial construction in this context. To hold otherwise would be to convert a policy for insurance into a performance bond.”).

Policyholders: Insurance policies should be interpreted according to their terms, not simplistic rules of thumb. See, e.g., Greystone Const., Inc. v. National Fire & Marine Ins. Co. , 661 F.3d 1272, 1288'89 (10th Cir. 2011) (Colo. law) (“[E]ven if the CGL policy does share some characteristics of a performance bond, that alone is an insufficient reason to ignore the plain language and intent of the policy.”). Again, the CGL policy intentionally contains a significant malpractice component.

The 'Legally Obligated' Requirement

Insurance Companies: Tort claims, but not contract or warranty claims, are legal obligations, such that the latter two cannot satisfy the policy's “legally obligated” requirement. See, e.g., Action Ads, Inc. v. Great Am. Ins. Co. , 685 P.2d 42, 44-45 (Wyo.1984) (“We conclude that the coverage clause at issue in the present case encompasses liability which the law imposes on all insureds for their tortious conduct and not on the liability which a particular insured may choose to assume pursuant to contract. Action Ads' potential liability in this case stemmed not from its own negligent behavior, but from a contractual obligation.”).

Policyholders: “Legally obligated” simply means that the claim against the policyholder must be adjudicated to the point that a binding judgment, arbitration award, or settlement has been entered against the policyholder before the insurance company is required to pay the claim. See, e.g., Vandenberg v. Superior Court , 21 Cal. 4th 815, 88 Cal. Rptr. 2d 366, 383, 982 P.2d 229 (1999) (a “reasonable lay person would certainly understand 'legally obligated to pay' to refer to any obligation which is binding and enforceable under the law, whether pursuant to contract or tort liability.”).

The 'Occurrence' Requirement

Insurance Companies: An “occurrence” requires an accident, and the faulty workmanship of manufacturing or installing the solar panels is the product of deliberate acts, and as such, does not qualify as an accident. See, e.g., Town & Country Property, L.L.C. v. Amerisure Ins. Co. , 111 So.3d 699, 706 (Ala. 2012) (“faulty workmanship itself simply does not constitute an accident or 'occurrence' within the meaning of a comprehensive general-liability insurance policy ('a CGL policy'), such as the policy here”).

Policyholders : Our actions may have been deliberate, but we certainly did not foresee any appreciable chance of the property damage that was later manifested in the panels, and that's an “accident.” See, e.g., Lamar Homes, Inc. v. Mid'Continent Casualty Co. , 242 S.W.3d 1, 8 (Tex.2007) (“a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.”).

The 'Property Damage' Requirement

Insurance Companies 1: Damage to or deterioration of the policyholder's own work or product itself does not satisfy the “property damage” requirement. See, e.g., Amerisure Mut. Ins. Co. v. Auchter Co. , 673 F.3d 1294, 1308 (11th Cir. 2012) (“this defect alone cannot constitute property damage ' because [claimant] seeks only to remedy the defect ' in effect, to obtain the non-defective roof that should have been built in the first place ' there is none”). As such, only damage that is done to property that is not the work or product of the policyholder is covered.

Policyholders 1 : Physical damage to or deterioration of the panels clearly satisfies the policy's “physical injury to tangible property” definition of “property damage.” See, e.g., Diamaco, Inc. v. Aetna Cas. & Sur. Co. , 97 Wash. App. 335, 983 P.2d 707, 709 (Div. 1 1999), as amended on reconsideration, (Oct. 12, 1999) (“The policy language, fairly read, does not support Travelers' contention that the term 'property damage' is limited to 'property of another'”).

Insurance Companies 2: The majority of the damages sought in these cases are for economic injuries, not damages for “property damage,” e.g., decreased energy output. See, e.g., Transportation Ins. Co. v. AARK Const. Group, Ltd. , 526 F. Supp. 2d 350, 357 (E.D. N.Y. 2007) (“an 'occurrence' of property damage under a CGL policy cannot exist where a general contractor's 'negligent acts only affect[ ] [the property owner's] economic interest in the building.'”).

Policyholders 2: CGL policies cover not only property damage, but also any and all damages “because of” covered property damage, which also include all damages arising out of the “property damage,” including consequential economic damages. See, e.g., Anthem Electronics, Inc. v. Pacific Employers Ins. Co. , 302 F.3d 1049, 1057 (9th Cir. 2002) (“We decline to hold that coverage is precluded simply because the extent of [property] damage is expressed as economic loss.”).

Insurance companies 3: The costs to repair or replace those panels that have not yet failed but are likely to do so, because they contain a known problem, do not satisfy the “property damage” requirement, because the panels have not yet experience any physical injury. See, e.g., Fireman's Fund Ins. Co. v. Hartford Fire Ins. Co. , 73 F.3d 811, 815 (8th Cir. 1996) (cost of repairs to fire sprinkler supports not covered as “property damage” when repairs were undertaken to prevent flooding, but no flooding had occurred prior to the repairs).

Policyholders 3: The policy covers not only “property damage,” but also all consequential “damages because of property damage.” Such preventative costs are “damages because of property damage” that would occur if such measures weren't taken. See, e.g., Ellsworth-William Co-op. Co. v. United Fire & Cas. Co. , 478 N.W.2d 77, 81 (Iowa Ct. App. 1991) (the court held that the cost of removing grain from defectively built storage bins was covered, reasoning: “Clearly, [the insurer] would be liable for the cost of the grain itself if the grain did spoil. This would be 'injury of tangible property' covered by the policy. Additionally, such rotten grain would still have to be removed.”).

The Contractual Liability Exclusion

Insurance Companies: This exclusion for liability that is “contractually assumed” bars coverage for all breach of contract and breach of warranty claims. See, e.g., Younglove Const., LLC v. PSD Development, LLC , 767 F. Supp. 2d 820, 826 (N.D. Ohio 2011) (“the claim for damages resulting from the loss of storage space ' sounds in contract ' and the contractual liability exclusion therefore does apply”).

Policyholders: According to the policy drafters' intent, current insurance industry usage, and the most reasonable interpretation of the exclusion's wording, “contractually assumed” liability refers to the policyholder's assumption of a third party's liability, such as by indemnity agreement. So, the exclusion does not apply to liability for ordinary breach of contract and breach of warranty. See, e.g., American Family Mut. Ins. Co. v. American Girl, Inc. , 16673 N.W.2d 65, 81 (2004) (“We conclude that the contractually-assumed liability exclusion applies where the insured has contractually assumed the liability of a third party, as in an indemnification or hold harmless agreement; it does not operate to exclude coverage for any and all liabilities to which the insured is exposed under the terms of the contracts it makes generally.”)

The Your Product Exclusion

Insurance Companies: This exclusion bars coverage for property damage to the manufacturers' or distributers' own products. See, e.g., ABT Building Products Corp. v. National Union Fire Ins. Co. of Pittsburgh , 472 F.3d 99, 118 (4th Cir. 2006) (exclusion applied to deterioration of manufacturer's defective wood siding after it had been applied to claimants' homes).

Policyholders: Once the panels were combined with the on-site labor of building them into the real property, they ceased being “products” in that sense, all in accordance with the definition of “your products” in the policy itself, which says the exclusion cannot apply to real property. See, e.g., Auto-Owners Ins. Co. v. American Building Materials, Inc. , 820 F. Supp. 2d 1265, 1272 (M.D. Fla. 2011) (“because the [policyholder's] drywall became “real property” once it was installed, it is not within the definition of “your product” under the policy], and the exclusion] does not apply.”).

The Your Work Exclusion

Insurance Companies: This exclusion bars coverage for property damage to the panel installation contractor's own work. See, e.g., Home Owners Warranty Corp. v. Hanover Ins. Co. , 683 So. 2d 527, 530 (Fla. Dist. Ct. App. 3d Dist. 1996) (exclusion applied to policyholder's work even though the work was performed through subcontractors).

Policyholders: By an exception at the end of the exclusion, it cannot apply to property damage to either their subcontractors' work or where the property damage arises from subcontractors' work. See, e.g., Forrest Const., Inc. v. Cincinnati Ins. Co. , 703 F.3d 359, 364 (6th Cir. 2013) (“the 'your work' exclusion does not apply to work done by subcontractors”).

The Impaired Property Exclusion

Insurance Companies: This exclusion applies to “property damage” to “impaired property” or property that has not been physically injured, arising out of ' [a] defect, deficiency, inadequacy or dangerous condition in “your product” or “your work” ' .

Policyholders: The exclusion is incomprehensible, ambiguous, and therefore unenforceable. See, e.g., Washington Energy Co. v. Century Sur. Co. , 407 F. Supp. 2d 680, 695 (W.D. Pa. 2005) (“the language of the impaired property exclusion, as applied to the facts of this case, is ambiguous and therefore, must be construed in favor of the insured.”)

The Product Recall Exclusion

Insurance Companies: The liability here is for a product recall; therefore, this exclusion applies. See, e.g., Hathaway Development Co., Inc. v. Illinois Union Ins. Co. , 274 Fed. Appx. 787, 792 (11th Cir. 2008) (exclusion applied to cost to repair defects in general contractor's apartment complexes.).

Policyholders: A product recall involves withdrawing products that have not yet failed but which are being withdrawn from use because of a known or suspected defect that might cause them to fail in the future. Most of these claims only involve solar panels that have actually failed, so the exclusion cannot apply. See, e.g. , Auto-Owners Ins. Co. v. NewMech Cos ., 678 N.W.2d 477, 485 (Minn. Ct. App. 2004) (“The units were never withdrawn from the market in the sense of the policy; rather, they were just repaired ' [So, the exclusion] does not apply.”).

Analysis

How much liability will be covered in the end? That depends on too many factors to give a general prediction. The insurance-side arguments will be weak in most cases, but on any given claim an insurance company is likely to raise numerous coverage defenses, giving courts many opportunities to become confused and make the wrong decision on a critical issue. (That is, of course, why insurance companies raise a long list of issues.) For policyholders, however, it does generally pay to push back against these asserted coverage defenses, in many cases following through with litigation.

The various U.S. jurisdictions are deeply divided over some of the coverage issues discussed here, so choice-of-law will often be the first bone of contention. Once notice of the claim is given to the insurance company, in many cases both parties will feel compelled to race to file the first lawsuit over coverage in their preferred jurisdiction. Therefore, policyholders expecting big claims should have their coverage counsel in place and on top of the issues well before those claims come in, and be prepared to furnish prompt notice to the insurance company. That way, a quick but well-analyzed response can be executed when the claims do come in ' which in some cases will mean filing suit almost as fast as filing notice.

Once a claim is made against a policyholder, some jurisdictions are very strict in their enforcement of the policy's “timely notice” provision requiring policyholders to notify their insurance companies within a fixed period, sometimes as short as a week, after learning about a potential loss or liability. So, it is very important that policyholders be prepared to give that notice promptly.

The fight over coverage will be hard on small policyholders that do not have the legal sophistication or the financial and personnel resources to simultaneously fight the wave of liability claims and intelligently pursue their coverage claims. Larger policyholders that have those resources will probably fare well to reasonably well in the end ' but in most cases, only after a long fight.

Switching perspectives, larger claimants that expect that their targeted solar panel defendants will be insolvent before they can collect on their claims should tailor their claims toward the defendants' insurance coverage, as insurance coverage will usually survive bankruptcy as a source for satisfying judgments against insolvent policyholders. Of course, artful targeting works much better if the coverage analysis is done before the liability suit is filed.

For all concerned, anticipation and thorough advance preparation may prove decisive in determining the extent of coverage and the outcome of coverage disputes.

Scott C. Turner ([email protected]), is of counsel at Anderson Kill, a national firm that exclusively represents policyholders. He is a construction insurance attorney with over 20 years of experience securing insurance recoveries for property losses and in securing defense and indemnification for liability resulting from construction disputes and defects. Mr. Turner is the author of the two-volume legal treatise, Insurance Coverage of Construction Disputes (2nd ed. Thomson Reuters Westlaw 2013).