Insurer not obligated to compensate modular unit maker

An insurer is not obligated to compensate a prefabricated modular unit manufacturer for the sum paid for storm damage repair because it was never sued, a federal appeals court said, in affirming a lower court ruling.

Bloomsburg, Pennsylvania-based Modular Steel Systems Inc. obtained a commercial general liability insurance policy from Westfield Center, Ohio-based Westfield Insurance Co. that said the company would be indemnified for sums the insured became legally obligated to pay for property damage, according to Monday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Modular Steel System, Inc. v. Westfield Insurance.

During a construction project in Brunswick, New Jersey, a storm struck causing water damage to its modular units, the ruling said. Modular Steel paid more than $100,000 out-of-pocket to fix the damage, which it said was in accordance with its contractual obligations, it said. There was no indication anyone had pursued any legal action against Modular Steel for any storm damage.

The company sought reimbursement under its coverage with Westfield. The insurer denied coverage, and Modular Steel filed suit against it.

The U.S. District Court in Scranton, Pennsylvania, ruled in the insurer’s favor and was affirmed by a three-judge appeals court panel.

“Modular Steel’s amended complaint does not indicate that Westfield’s obligations were triggered under the policy’s plain language,’” the ruling said.

“Modular Steel relies heavily on the policy’s language” that allows Westfield to settle any claim or suit that arises from an occurrence, “arguing that it shows that a ‘suit’ need not be filed in for coverage to apply. That interpretation of the policy is incorrect,” a three-judge appeals court panel said.

Westfield’s right to settle a claim before it becomes a lawsuit is “a discretionary right, not an obligation,” it said. It becomes an obligation only when it becomes legally obligated to pay.

Attorneys in the case did not respond to requests for comment.

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