Insurance coverage for solar panel defect litigation
By Scott C. Turner
In May, the New York Times reported that "the $77 billion solar industry is facing a quality crisis just as solar panels are on the verge of widespread adoption," citing multiple reports of double-digit defect rates for installed components, mostly manufactured in China. If so, we could see a wave of large lawsuits coming against solar panel manufacturers, the component manufacturers that supplied parts or materials used in the making of those panels, the panel distributors and dealers, and the contractors who installed the panels.
What can these businesses expect when they turn to their insurance companies for help with these liability claims?
Since solar panels are built into real property, insurance coverage will be analyzed much as it has been for other waves of defective building materials. Over the last 25 years, these have included Chinese drywall, Exterior Insulation Finishing Systems (EIFS), Chinese galvanized plumbing pipe with pinhole leaks, polybutylene plastic plumbing systems, and asbestos-containing building materials (ACBM). We know pretty well what to expect. We've been here before.
First, the good news: there should, in theory, be large amounts of coverage for these entities under their Commercial General Liability (CGL) policies.
Now, the bad news: insurance companies will, in many cases, refuse to honor coverage on these claims and will fight them at every remotely arguable procedural and policy provision hedgerow.
In the CGL policy, the chief points of contention are likely to be as follows:
• The Occurrence requirement: "Occurrence" requires an accident, and insurance companies will argue that faulty workmanship of manufacturing or installing the solar panels is the result of deliberate acts and therefore does not qualify as an accident. Policyholders will argue that their actions may have been deliberate, but they did not foresee any appreciable chance of the property damage that was later experienced by the panels, and that's an accident.
• The Property Damage requirement applied to the policyholder's own work or product: insurance companies will argue that damage to or deterioration of the policyholder's own work or product itself does not satisfy the "property damage" requirement; only damage done to property that is not the work or product of the policyholder is covered. Policyholders will argue that physical damage to or deterioration of the panels clearly satisfies the policy's "physical injury to tangible property" definition of "property damage".
• "Property damage vs. economic injury: Insurance companies will argue that the majority of damages sought in these cases are for economic injuries, not damages for "property damage", e.g., decreased energy output. Policyholders will respond that CGL policies cover not only property damage, but also any and all damages "because of" covered property damage, and that includes all damages arising out of the "property damage", including resulting economic damages.
• Current "property damage" vs. future "property damage": Insurance companies will assert that the costs to repair or replace those panels that have not yet failed but are likely to do so do not satisfy the "property damage" requirement, because the panels have not yet experienced any physical injury. Policyholders' reply: the policy covers not only "property damage" but also all consequential "damages because of property damage". Such preventative costs are "damages because of property damage" that would occur if such measures weren't taken, so they should be covered.
• Insurance companies will invoke the exclusion for property damage to the manufacturers' or distributors' own products. Policyholders will reply that once the panels were combined with the on-site labor of building them into the real property there, they cease being "products" in that sense, according to the definition of "products" in the policy itself.
• For solar panel contractors, the exclusion for property damage to that contractor's completed work:
Insurance companies: this exclusion bars coverage for property damage to panel installation contractors' own work.
Policyholders: An exception at the end of the exclusion states that it cannot apply to property damage to either their subcontractors' work or where the property damage arises from subcontractors' work.
So the debate will go down a long list of policy provisions.
The various U.S. jurisdictions are deeply divided over many of these issues, so which state's law applies will in many cases be crucial.
These battles will be particularly hard on small policyholders who lack the legal sophistication or the financial and personnel resources to both fight the liability claims and intelligently pursue their coverage claims. Larger policyholders who have those resources will probably fare well to reasonably well in the end—but usually only after a long fight.
Larger claimants who expect that their targeted solar panel defendants will be insolvent before they can collect on their claim should tailor their liability claims toward the defendants' insurance coverage, as it will usually survive bankruptcy as a source for satisfying their claims. Of course, this works much better if the coverage analysis is done before the liability suit is filed.
Scott C. Turner ([email protected]) is a counsel at Anderson Kill, a national firm known for exclusively representing policyholders. He is a construction insurance attorney with over 20 years of experience securing insurance recoveries for property losses and in securing defense and indemnification for liability resulting from construction disputes and defects. Turner is the author of the two-volume legal treatise, Insurance Coverage of Construction Disputes (2nd ed. Thomson Reuters 2013).