United States Metals, Inc. v. Liberty Mut. Group, Inc.

United States Metals, Inc. v. Liberty Mut. Group, Inc.

Opinion

 [*21]  Chief Justice Hecht delivered the opinion of the Court.

The insured under a standard-form commercial general liability insurance policy supplied flanges for use in constructing refinery processing units. The flanges leaked and had to be replaced to avoid the risk of fire or explosion. The flanges were welded to the pipes they joined and therefore had to be cut out while the refineries were shut down. The insured claims that its liability for the refinery owner's replacement costs and downtime damages are covered by its CGL policy.

The policy covers "physical injury" to property and the lost use of [**2]  property that could not be restored by replacing the flanges. Four questions certified to us by the United States Court of Appeals for the Fifth Circuit¹ raise two issues. One is whether property is physically injured merely by installing a defective product into it. This is an issue over which American jurisdictions have differed and one which we have not had occasion to consider. The other issue is whether replacing the flanges restored the refinery property to use when some of the property was destroyed in the process. We conclude that the policy does not cover most of the damages claimed and answer the Circuit's questions accordingly.

U.S. Metals, Inc. sold ExxonMobil Corp. some 350 custom-made, stainless steel, weld-neck flanges for use in constructing nonroad diesel units at its refineries in  [*22]  Baytown, Texas, and Baton Rouge, Louisiana. The units remove sulfur from diesel fuel and operate under extremely high temperatures and pressures. ExxonMobil contracted for flanges made to meet industry standards and designed to be welded to the piping. The pipes and flanges, after they were welded together, were covered with a special high temperature coating and insulation.

In [**3]  post-installation testing, several flanges leaked. Further investigation revealed that the flanges did not meet industry standards, and ExxonMobil decided it was necessary to replace them to avoid the risk of fire and explosion. For each flange, this process involved stripping the temperature coating and insulation (which were destroyed in the process), cutting the flange out of the pipe, removing the gaskets (which were also destroyed in the process), grinding the pipe surfaces smooth for re-welding, replacing the flange and gaskets, welding the new flange to the pipes, and replacing the temperature coating and insulation. The replacement process delayed operation of the diesel units at both refineries for several weeks.

Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.