They Could Have Used a Captive Insurance Company: PPG Industries

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The follow facts are from Joseph v. PPG Industries, 674 S.W.2d 862, (Austin 1984):

On August 19, 1977 Joseph entered into a written contract with John Swope Construction Company (Swope) for Swope to build a commercial building for the maximum price of $250,000. Plans and specifications called for installation of a series of double paned windows. PPG submitted a bid for sale and installation of the glass which was accepted by Swope. PPG and Swope entered into a written contract providing that PPG would sell and install the glass for $10,654.01.

The contract also contained a warranty which provided that if the materials (glass) furnished by PPG had not been manufactured in a workmanlike manner, "PPG's only obligation shall be to provide a replacement unit(s) but no labor."  Joseph paid Swope all but $9,000 of the contract price for the entire building; payment of the contract necessarily included the window glass. Swope, however, failed to pay PPG, abandoned the job sometime in September of 1978, and cannot be found.

The above facts illustrate the need for the following insurance coverage:

1. Contractual liability: the case is centered on a contract dispute, where one party breached its agreed to promises.  Traditional commercial general liability policies exclude this risk while a captive can provide coverage for a counter-party breach and an “anticipatory repudiation.” 
2. Sub-contractor default: this is all too common in the construction industry.  For example, a contractor hires a sub-contractor to perform part of a job.  Sometime after completion, fault is found with the sub-contractor’s work, who has disappeared.  The primary contractor, however, is still a going concern who is now liable for the loss.  A sub-contractor default policy would provide coverage for the primary contractor’s exposure.
3. Warranty: the Uniform Commercial Code places several warranties on goods sold between “merchants.”  In addition, a seller may make certain warranties to non-merchants. "Curing” a defect in the goods costs money.  Captives routinely underwrite this risk.      
4. Product Liability: anyone who places a product in the “stream of commerce” can be held liable by a plaintiff’s attorney for harm caused by that good.  A product liability policy would provide coverage for this event.
5. Product recall: like product liability, it’s always possible that someone who makes a good will have to remove it from the shelves due to defect.  A product recall policy indemnifies the insured for this expense.
6. A legal liability policy provides funds for an attorney in the event the insured is sued.  All the parties in this fact pattern would have benefited from this policy.