Hallmark Specialty Insurance Company v. Kamflex Conveyor Corporation

Background

Hallmark sought default judgment in an insurance-coverage dispute involving Kamflex Conveyor Corporation. The opinion discusses an underlying action by Desserts on Us, which alleged that it could not use a new building because the building contained Kamflex’s defective cookie-packaging system. Desserts on Us also alleged that Kamflex failed to fulfill its contractual obligation to install a working system.

Court’s reasoning

The court applied the factors from Eitel v. McCool, which guide whether a federal court should enter judgment when a defendant has defaulted. The court focused on exclusion m in Kamflex’s insurance policy. That exclusion barred coverage for property damage to “impaired property” arising from a defect, deficiency, inadequacy, or dangerous condition in the insured’s product or work, or from the insured’s delay or failure to perform a contract according to its terms.

The policy defined “impaired property” to include tangible property that could not be used or was less useful because it incorporated the insured’s product or work that was known or thought to be defective, deficient, inadequate, or dangerous, or because the insured failed to fulfill a contract. The court found that the allegations in the underlying action fit those definitions. It concluded that there was no potential for indemnity and that Hallmark had no duty to defend Kamflex.

Disposition

The court granted the motion for default judgment. The opinion does not state the precise scope of relief beyond that ruling. Judge Vince Chhabria signed the order.