U.S. Metals, Incorporated v. Liberty Mutual Group, Inc.

U.S. Metals, Inc. (plaintiff) sold ExxonMobil flanges for use in diesel-refinery processing units that operate under extremely high temperatures and pressures. The flanges were welded to pipes and then covered with a special high-temperature coating and insulation. During testing, several flanges leaked because they were defective and did not meet industry standards. ExxonMobil replaced them to avoid the risk of fire or explosion. Replacement shut down the refineries for weeks while the flanges were cut out and replaced. This destroyed the temperature coating, insulation, and gaskets, which had to be replaced. ExxonMobil sued U.S. Metals for $6.3 million to replace the flanges and $16.6 million in shutdown-related damages. The case settled for $2.2 million. U.S. Metals had a standard-form commercial general liability (CGL) insurance policy with Liberty Mutual Group, Inc. (Liberty Mutual) (defendant). U.S. Metals sought recovery from Liberty Mutual for ExxonMobil’s replacement costs and downtime damages. The policy did not cover damages to the flanges themselves. The plan terms covered only (1) physical injury to ExxonMobil’s property and (2) lost use of ExxonMobil’s property that could not be restored by replacing the flanges. U.S. Metals sued Liberty Mutual in federal court for nonpayment under the policy. The district court granted summary judgment for Liberty Mutual. U.S. Metals appealed. The United States Court of Appeals for the Fifth Circuit certified four questions to the Texas Supreme Court regarding the interpretation of “physical injury” and “replacement” in the CGL.