• Coverage Expands to Design and Engineering Defects under Master Liability Policy
  • April 8, 2013 | Author: Megan E. Boyd
  • Law Firm: Carlock, Copeland & Stair, LLP - Atlanta Office
  • In affirming summary judgment for the insured in Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp. the Georgia Court of Appeals relied upon the adage that the scope of coverage is broad.  The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”).  Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP. 

    When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  When AGCO sued, Warranty Specialists and Cassidy Davis defended the suit on the basis that neither the EPP nor the master policy insured the wheel motor failure because the failure was caused by a design or engineering defect and not due to a mechanical breakdown caused by manufacturing defects in workmanship or materials.

    The Georgia Court of Appeals affirmed the trial court’s grant of summary judgment to AGCO.  The Appellate Court noted that the policy covered the breaking of any part on the RoGator “arising from faults attributable to manufacturing defects in workmanship or materials,” and held that the phrase was broad enough to include breakdown resulting from a design or engineering defect.  Furthermore, the court noted that the policy contained specific exclusions to coverage, but breakdown from design or engineering defect was not specifically excluded.

    In finding coverage, the Appellate Court noted that under Georgia law, “where a contract requires a conduct ‘arise out of’ an act, ‘it does not mean proximate cause in the strict legal sense but instead encompasses almost any causal connection or relationship.’”  According to the opinion, “‘nothing more than a slight causal connection is required . . . ’ [Cits.]”  Consequently, the Court held that “the phrase ‘arising from fault attributable to manufacturing defects and workmanship or materials’ is broad enough to include a breakdown or failure related to a manufacturing defect, even where there was a design or engineering defect.”