During the years 1997 and 1998, All Purpose Services Ltd. (All Purpose) was covered by two, subsequent Commercial General Liability (CGL) Policies issued by Continental Western Insurance Company (Continental). When the ’97 policy period renewed to the next term, the edition of the CGL was changed. However, under both policy periods, Swank Enterprises, Inc. (Swank) appeared as an additional insured.

During the first of the two policy periods, All Purpose became a subcontractor for Swank. It secured the job of painting the pipes and filter tanks of a water treatment plant that Swank was hired to build for the city of Libby, Montana. As part of their agreement, Swank mandated their addition to the All Purpose CGL policies. All Purpose began the paint job during the first policy period and completed it during the second policy period. After the job was done, it was discovered that All Purpose used the wrong type of paint. The treatment plant had to be closed during the time it took to strip off and repaints all of the tanks and pipes. Libby sued Swank for this expense and Swank, as an additional insured, filed a claim under All Purpose’s Continental CGL policy.

Continental denied the claim, citing several parts of its earlier edition policy. Swank then sought coverage under its own CGL, issued by St. Paul Fire and Marine Insurance Company. (St. Paul). St. Paul, on behalf of Swank, eventually paid Libby nearly $150,000 to settle the claim. Swank and St. Paul then sought reimbursement from Continental. Both parties filed declaratory actions and a district court ruled in favor of Swank and St. Paul for actual damages; however it denied Swank’s claim for recovery of prejudgment interest. Continental appealed (disputing the damaging award) and Swank filed a separate appeal (challenging the denial of prejudgment interest).

When it initially denied coverage to Swank, Continental cited provisions of the earlier edition of its CGL form and even provided a copy of that form to Swank. However, at the time that legal motions were filed, Continental relied on the wording of the newer edition form. The lower court ruled that the earlier form was applicable to the Libby loss. That court also interpreted the loss as having originated when All Purpose began applying the wrong paint during the first applicable policy period, initiating a covered occurrence. That finding aligned with Swank’s initial argument that, as an additional insured, the earlier policy period’s language provided coverage. That same court also ruled that, as the amount of coverage had been in dispute until the time of ruling; it was not appropriate to award prejudgment interest.

The higher court then reviewed the matter, first focusing on the lower court’s finding that the earlier CGL form was applicable to the Libby loss. The court found that, even considering the fact that the discovery of the use of the wrong paint was not determined until the second policy period (where the later CGL form would apply), the paint’s application still constituted the triggering event. It was at that moment when the infliction of tangible damage occurred to Libby’s property.

The higher court then addressed how the lower court interpreted the earlier edition CGL’s exclusionary language. The provision’s originally cited in Continental’s denial made specified reference to the policy’s named insured, including the use of defined term’s “you” and “your” which also referenced a named insured. Those provisions distinctly excluded losses related to such an insured’s “product”. Swank’s continuing argument pointed out the fact that those provisions did not mention additional insureds. Further, the company pointed out that other parts of the policy mentioned exclusions that applied to all insureds as well as to another provision that referenced distinct coverage and interests held by additional insureds and named insureds. The higher court took note of these issues and also considered the fact that the newer policy addition included modified wording (principally via an amendatory form) that made the product-related exclusions applicable to all insureds.

In light of its review, the higher court found the earlier CGL form to be ambiguous with regard to the cited exclusions. It therefore ruled that the lower court’s finding regarding the applicability of coverage was proper. However, the higher court, upon examining the issue of prejudgment interest, decided that a party’s dispute of a settlement amount does not affect acknowledgment of related, prejudgment interest expense. That court also ruled that Swank was entitled to having its request for reimbursement of that expense examined. The court affirmed and reversed and remanded the appealed motions; both in favor of Swank.

Swank Enterprises, Inc., and St. Paul Fire and Marine Insurance Company, Plaintiffs-Respondents v. All Purpose Services, Ltd., and Continental Western Insurance Company, Defendants and Appellants. MTSPCT, No. DA06-0143. Filed March 5, 2007. Affirmed in part and Reversed/Remanded in part.

http://fnweb1.isd.doa.state.mt.us/idmws/docContent.dll?Library=CISDOCSVR01^doaisd510&ID=0037683 (downloaded February 7, 2008)