Builder’s Risk Insurance

Grand Prairie insurance lawyers and those in other parts of Texas are going to run across various types of commercial insurance policies. One of those is known as “Builder’s Risk” policy. Here is a case dealing with a “Builder’s Risk” policy.
The case is styled, North American Shipbuilding v. Southern Marine and Aviation Underwriting. This is a 1996, opinion issued by the Houston Court of Appeals, 1st Dist.
The case involves the insuring of the hull of a ship during construction. North American purchased the builder’s risk policy through the insurance brokerage firm of Adams & Porter. Adams & Porter purchased the policy through a wholesale broker, Southern Marine, from the Underwriters. The policy insured against “all risks of physical loss of or damage to the vessel occurring during the currency of this policy except: … in the event that faulty design of any part or parts should cause physical loss or damage to the vessel.”
North American tested the welds on the hull. Certain welds failed the test. The cause was improperly mixed welding gas that North American had received from Swisco. North American replaced all of the welds. North American then demanded $1,056,795 from the Underwriters. The Underwriters denied coverage. North American sued the Underwriters for breach of insurance contract, breach of duty of good faith and fair dealing, fraud, violations of the Insurance Code, and punitive damages. North American sued Southern Marine for breach of duty of good faith and fair dealing, fraud, and intentional misrepresentations, negligent misrepresentation, common law negligence, violations of the Insurance Code, and punitive damages. Both the Underwriters and Southern Marine filed motions for summary judgment. The trial court granted summary judgments for the Underwriters and Southern Marine on all claims. North American appealed.
This Court affirmed the summary judgment grants. This Court said that although a builder’s risk policy may cover accidents caused by defective workmanship, the language “physical loss of or damage to the vessel” does not cover cost of repairing faulty initial construction, mistakes in construction, or deceptive workmanship. The Underwriters did not breach the insurance contract and the Underwriters had a reasonable basis for denying the claim, thereby precluding recovery for bad faith. In addition, Southern Marine’s representation that the policy “insures against all risks of physical loss of or damage …” was not a misrepresentation. Southern Marine did not represent that the policy would cover faulty workmanship. Therefore, Southern Marine did not make actionable misrepresentations.
Finally, Southern Marine was not North American’s agent, it was the Underwriter’ agent. When North American’s agent (Adams & Porter) agreed to apply for insurance on behalf of the principle (North American) that agent had the duty to inform the principle what coverages were included. Southern Marine, the agent of the insurer (Underwriters) did not have a duty to the applicant to explain the terms of and coverages included in the application.