Florida Appeals Court Holds “Your Product” Exclusion Bars Does Not Apply to Altered Products Not Transformed Into “New Products”

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On September 4, 2013, a Florida appellate court reversed, in part, a final summary judgment ruling that Liberty Mutual has to pay its insured, MI Windows and Doors, Inc. for the $3.4 million that MI paid to settle several defective-product lawsuits. Liberty Mutual Fire Insurance Company v. M.I. Windows and Doors, Inc., 2013 WL 4734045 (Fla. 2d DCA).  The Second District Court of Appeal concluded that the trial court erred in ruling that the “your product” exclusion in the policy was inapplicable to the cost of replacing MI’s defective doors.

MI manufactures windows and doors.  In the late 1990s/early 2000s, MI sold its products to All Seasons, which agreed to install them in five condominiums in Alabama.   All Seasons installed transoms on top of the sliding glass doors before they were installed in three of the condominiums. 

 

MI was a named insured under a Liberty Mutual general liability policy and during the policy period, the condominiums were damaged by tropical storms.  The five condominium associations sued MI, which paid $3.4 million to settle the lawsuits.  MI then sued Liberty Mutual to recover the cost of replacing the defective doors at the condominiums.  The subject policy provided coverage on an occurrence basis and included a “your product” exclusion, which barred coverage for damage to any of MI’s “products.” 

 

The trial court granted summary judgment to MI and concluded that the “your product” exclusion did not apply to the doors with transoms, because they were significantly altered after they were sold by MI, contributing to the damage suffered.  The trial court found there was $3.4 million worth of damages covered by the policy, $1.9 million of which was for replacement of the doors.  Because the policy had a $1 million per-occurrence limit, the trial court awarded MI $2 million in damages.

 

On appeal, Liberty Mutual challenged the trial court’s ruling that the “your product” exclusion did not limit its liability.  The exclusion’s language unambiguously provided that the insurance did not apply to “damage to your product.”   The appellate court noted that few Florida cases have addressed the issue of coverage for altered products and that they provided no conclusive answer to the issue before it.  The trial court apparently relied on cases out of the Third Circuit Court of Appeals and held the “your product” exclusion inapplicable because the doors were so materially changed by the addition of the transoms, they were no longer MI’s “product.”  The appellate court stated, however, that those cases were distinguishable, in that “common sense dictates that the doors were not made into something else.” 

 

“The doors retained their identity after being hung on transoms.  They continued to operate as sliding glass doors.”  Thus, the doors remained MI’s product and the “your product” exclusion precluded any damages awarded to replace them.

 

The appellate court reversed the damages awarded in relation to the “your product” exclusion and affirmed in all other aspects.