The United States coastguard sued Bollinger Shipyards for defective repairs to patrol boats that rendered them useless. The claim was $78 million. It was held that the insurers did not owe the shipyard an indemnity because the claim was excluded by a work product exclusion.

The cover excluded “the failure of your products to meet any pre-determined level of fitness or performance … and/or any consequential loss arising therefrom”.

It was held that such work product exclusions typically restrict coverage because liability policies are not intended to serve as performance bonds. The shipyard, somewhat imaginatively, argued that government was not seeking damages for the work or product alone but for the entire value of the eight vessels that had failed in operation.

The court held that the exclusion exempted claims for damages not only to the insured’s work product but also to things other than the insured’s product. It specifically excluded any consequential loss arising from the failure of the work and products. Therefore the claimed loss was not indemnified.