What Does That Sign Say? No Coverage for Defective Street Signs

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U.S. District Court for the Western District of Texas

In Admiral Ins. Co. v. H&W Indus. Services, Inc., 2011 WL 318277 (W.D. Tex. February 1, 2011), the U.S. District Court for the Western District of Texas held that a commercial general liability (CGL) insurer had no duty to defend or indemnify a sign manufacturer that produced defective signs, due to the “your product” and “impaired property” exclusions.

H&W Industrial Services entered into a contract with the Texas Department of Transportation (TXDOT) to provide more than 10,000 street signs for the City of El Paso. The signs were to be manufactured in accordance with certain specifications and performance standards, including a guaranteed minimum performance period of seven years. Shortly after installation, the film covering the signs began to shrink and discolor, changing the appearance of the signs and making them a traffic hazard. All of the signs had to be replaced. TXDOT and the City of El Paso sued H&W for breach of contract and breach of express and implied warranties, alleging that the signs failed to meet the contractual performance requirements, and seeking recovery for “labor and materials to remove and replace the defective signs” and “the expense of storage of the replaced street signs and other incidental damages.” Admiral, H&W’s CGL insurer, declined H&W’s tender of defense and indemnity and thereafter brought a declaratory judgment action regarding its duty to defend and indemnify.

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