U.S. District Court, District of Maine

In Oxford Aviation, Inc. v. Global Aerospace, Inc., -- F. Supp. 2d --, 2011 WL 4102582 (D. Me.  Sept. 14, 2011), the U.S. District Court for the District of Maine rejected a claim by an insured aircraft refurbishment and repair facility, Oxford Aviation, Inc., that its aviation insurer, Global Aerospace, must defend a suit against Oxford alleging defective repairs to a customer's aircraft. 

Global had denied coverage for the underlying suit, in which Oxford's customer alleged that the insured incorrectly installed equipment, scratched and damaged the exterior of the aircraft, damaged avionics and engine components, and that in a subsequent flight a window cracked because of faulty repairs by the insured.  The customer asserted causes of action for breach of contract and warranties, violation of the Maine Unfair Trade Practices Act and deceptive trade practices law, unjust enrichment, promissory estoppel, fraud and negligent misrepresentation.  As the court noted, there was no claim for bodily injury and no claim for damages to any property other than the aircraft itself.

The insured argued that there was a potential for coverage for at least some of the damage, and therefore a duty to defend, under Coverage A of its aviation general liability insurance policy, which provided that the insurer would pay "those sums that the insured becomes legally obligated to pay as damages because of property damage to which this insurance applies," and under Coverage D, which provided hangerkeepers liability coverage.

Without directly addressing Global's argument that the damages did not result from an accident, the court concluded that, because all of the counts of the complaint relate to deficiencies in the insured's work and product, coverage was barred by the exclusions to Coverage A, including Exclusion (j), which excluded claims for damage to "personal property in the care, custody or control of the insured, Exclusion (k), which precluded coverage for property damage to "your product," and Exclusion (l), which barred coverage for property damage included in the "products-completed operations hazard."  The court also concluded that coverage for the crack in the window that subsequently occurred in flight because of the insured's faulty repair was barred by Exclusion (m), which excluded claims for damage to impaired property or property that has not been physically injured resulting from the deficient product or work of the insured.  The court appears to have viewed the window as "impaired property" defined in the policy as "tangible property other than your product or your work, that cannot be used or is less useful ...."  

The court also rejected the insured's argument there was a potential for coverage under Coverage D (hangerkeepers liability coverage).  Coverage D provided coverage for sums the insured becomes liable for because of damage to aircraft in the insured's "care, custody and control."  However, Coverage D explicitly excluded coverage for defects in the actual work of the insured while they have custody of the aircraft.  The court held that while it is undoubted that Coverage D covered accidental damage, there was no possibility of coverage because the complaint only sought compensation for damage caused by the insured's work rather than purely "accidental" damage.  Because the complaint specifically did not state a claim for the type of accidental damage to which Coverage D would apply, the court held that there was no duty to defend.