INSPECTION IS A “SERVICE,” FEDERAL DISTRICT COURT HOLDS, APPLYING POLICY EXCLUSION

A federal district judge in San Antonio found in favor of a garage liability insurer last week, allowing it to withdraw its defense of a tire shop under a garage policy based on an exclusion barring coverage for losses arising out of service of aged tires.  In Scottsdale Ins. Co. v. Flores, No. 5:19-CV-0156-JKP, 2020 WL 4353179 (W.D. Tex. July 28, 2020) (slip op.), the claimant alleged that the insured tire shop negligently inspected a vehicle’s tires and negligently failed to warn of the tires’ dangerous condition, resulting in a blowout and rollover accident that left the claimant a quadriplegic.

The garage policy issued to the tire shop contained an exclusion which expressly excluded losses that “arise out of ... sales, service, installation, maintenance, or repair, of any tire(s) five years or older.”  After the insurer brought a declaratory judgment action to determine whether the exclusion barred any duty to defend or indemnify, the claimants amended their petition to remove all references to “service” or to any services provided by the tire shop other than inspection of the tires, instead alleging only negligent inspection and negligent failure to warn.

Even after the amendment designed to strip the petition of coverage-destroying language, the court concluded that because the claimants alleged they took their vehicle to the shop and paid to have the tires inspected, the inspection was a “service” within the meaning of the policy exclusion.  The court also held the failure to warn claim was concurrent with, and not independent of, the excluded service and therefore it was not an independent covered claim which could create a duty to defend.

The court, however, declined to rule on the insurer’s duty to indemnify noting the insurer had not carried its burden to prove the same reasons that precluded a duty to defend also precluded any possibility there could ever be a duty to indemnify.  The court also declined to dismiss the tire shop’s insurance agent, which the tire shop brought in as a third-party defendant based on allegations the agent had misrepresented the scope of coverage.