A federal appeals court Wednesday affirmed a lower court ruling in favor of an Ohio insurer in a dispute with an Old Republic International Corp. unit in a construction defect case concerning a hotel’s exterior glass wall.

The case involves a hotel company that entered into a construction agreement with a general contractor to build an Intercontinental Hotel in San Francisco, according to the underlying ruling in Webcor Construction, L.P. et al. v. Zurich American Insurance Co.; and third-party complaint Old Republic General Insurance corp. v. Motorists Mutual Insurance Co.

The agreement called, in part, for the contractor to design and build an exterior curtainwall system of azure blue glass that would serve as the hotel’s exterior wall. A “curtainwall contractor” was hired for the project.

The curtainwall contractor subcontracted with two companies, one to manufacture the insulated glass units, and Garfield Heights, Ohio-based Midwest Curtainwalls Inc., which was hired to design and manufacture the curtainwall frame, glaze or glue the glass units into the frame, and ship the completed curtainwall to San Francisco, according to the ruling.

In the underlying litigation, the general contractor alleged that the migration or movement of the glass sealant used had caused a gray film or mottling in the glass units’ interior space, as well as visible discoloration of their edges.

Midwest Curtainwall had a commercial general liability policy with Columbus, Ohio-based Motorists Mutual Insurance Co. that covered property damage, which was defined as “physical injury to tangible property,” according to the underlying ruling.

The curtainwall contractor and general contractor were additional insureds under the Motorists policy, and also had their own coverage with Old Republic.

After the litigation was settled, Old Republic filed a third-party complaint against Motorists in U.S. District Court in Oakland, California, seeking a contribution toward defense costs that Old Republic had paid on behalf of the general contractor and curtainwall contractor.

The district court ruled that Motorists was not obligated to contribute to the defense costs, and a unanimous three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco upheld that decision in a three-and-a-half page ruling.

“The district court did not err in concluding that, in light of (an exclusion in) the Motorists insurance policy, there was no potential for coverage from the outset of the underlying litigation and, therefore, no duty to defend,” the ruling said.

The “only property damage alleged in the complaint was excluded” in the policy, it said, in affirming the lower court ruling.

Old Republic attorney John R. Campo, a partner with Branson, Brinkop, Griffith & Campo LLP in Redwood City, California, said the appeals court panel’s ruling “did not address the duty to defend issue at all and was so short that it did not provide any guidance to anyone with regard to the issue at hand.“

Motorists attorney James H. Wilkins, a partner with Wilkins, Drolshagen & Czeshinski LLP in Fresno, California, said, “To me, it was a pretty straightforward issue.

“The policy specifically wasn’t designed to be a performance bond or guarantee or warranty for work, and the claims against the insurers were all about defects in the products that were supplied, and that’s not what’s covered under a general liability policy.” 

In January, a federal appeals court ruled against a QBE Insurance Group Ltd. unit in a coverage dispute over arson at a hotel construction project, reversing a lower court ruling in the insurer’s favor.