Construction Property Damage Claims: CGL Exclusions K, L ...media.straffordpub.com/products/construction...Nov 08, 2017 · Here Come the Exclusions… •Now that an “occurrence”

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Presenting a live 90-minute webinar with interactive Q&A

Construction Property Damage

Claims: CGL Exclusions K, L and M, and

Products-Completed Operations Coverage

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, NOVEMBER 8, 2017

David M. Adelstein, Partner, Kirwin Norris, Orlando and Ft. Lauderdale, Fla.

Matthew J. Devereux, Partner, Tressler, Chicago

Kristine M. Sorenson, Partner, Walker Wilcox Matousek, Houston

Tips for Optimal Quality

Sound Quality

If you are listening via your computer speakers, please note that the quality

of your sound will vary depending on the speed and quality of your internet

connection.

If the sound quality is not satisfactory, you may listen via the phone: dial

1-866-570-7602 and enter your PIN when prompted. Otherwise, please

send us a chat or e-mail [email protected] immediately so we can

address the problem.

If you dialed in and have any difficulties during the call, press *0 for assistance.

Viewing Quality

To maximize your screen, press the F11 key on your keyboard. To exit full screen,

press the F11 key again.

FOR LIVE EVENT ONLY

Continuing Education Credits

In order for us to process your continuing education credit, you must confirm your

participation in this webinar by completing and submitting the Attendance

Affirmation/Evaluation after the webinar.

A link to the Attendance Affirmation/Evaluation will be in the thank you email

that you will receive immediately following the program.

For additional information about continuing education, call us at 1-800-926-7926

ext. 35.

FOR LIVE EVENT ONLY

Program Materials

If you have not printed the conference materials for this program, please

complete the following steps:

• Click on the ^ symbol next to “Conference Materials” in the middle of the left-

hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a

PDF of the slides for today's program.

• Double click on the PDF and a separate page will open.

• Print the slides by clicking on the printer icon.

FOR LIVE EVENT ONLY

Property Damage Claims

David Adelstein [email protected]

5


What does CGL cover?

6


It starts with the grant of coverage in the CGL policy...

7


CGL overs “property damage” caused by an “occurrence” during the policy period

8


How does the CGL define “property damage” and “occurrence”?

9


Application of the definition of “occurrence” when the word accident is not defined in standard CGL policies? State Farm Fire and Cas. Company v. McDermott, 2014 WL 5285335 (E.D.Pa.

2014):

“Courts in this district and in the state of Pennsylvania have, however, commented on identical language found in commercial general liability (“CGL”) insurer contracts and have defined an “accident” as “[a]n unexpected and undesired event, or something that occurs unexpectedly or unintentionally,” with “[t]he key term in the ordinary definition of ‘accident’ [being] ‘unexpected.” *** The Pennsylvania Supreme Court has held that faulty workmanship in cases such as these does not constitute “accidents” and are therefore not occurrences under CGL policies. *** McDermott's alleged failure to live up to contractual obligations cannot be seen as an accident or some unforeseeable event, as McDermott was specifically tasked with forestalling such a result.”

10


Application of the definition of “occurrence” when the word accident is not defined in standard CGL policies?

K & L Homes, Inc. v. American Family Mut. Ins. Co., 829 N.W.2d 724 (N.D. 2013):

“We have, however, defined “accident” for purposes of a CGL policy as “happening by chance, unexpectedly taking place, not according to the usual course of things.

***

We conclude faulty workmanship may constitute an “occurrence” if the faulty work was “unexpected” and not intended by the insured, and the property damage was not anticipated or intentional, so that neither the cause nor the harm was anticipated, intended, or expected.”

11


Application of the definition of “occurrence” when the word accident is not defined in standard CGL policies?

U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007):

“[P]olicies provide coverage not only for “ ‘accidental events,’ but also injuries or damage neither expected nor intended from the standpoint of the insured.

***

In sum, we reject a definition of “occurrence” that renders damage to the insured's own work as a result of a subcontractor's faulty workmanship expected, but renders damage to property of a third party caused by the same faulty workmanship unexpected.”

12


Application of the definition of “occurrence” when the word accident is not defined in the policy?

Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 137 P.3d 486 (Kan. 2006):

“The damage in the present case is an occurrence—an even more expansive coverage term than “accident”—because faulty materials and workmanship provided by Lee's subcontractors caused continuous exposure of the Steinberger home to moisture. The moisture in turn caused damage that was both unforeseen and unintended.”

13


Application of the definition of “occurrence” when the word accident is not defined in the policy?

Travelers Indem. Co. of America v. Moore & Associates, Inc., 216 S.W.3d 302 (Ten. 2007):

“We have held that when used in a liability insurance policy the word “accident” refers to “an event not reasonably to be foreseen, unexpected and fortuitous. *** Travelers argues that the water penetration was foreseeable to Moore because water penetration is a natural consequence of improperly installed windows. We are unpersuaded that the foreseeability of damages should be determined under an assumption that the windows would be installed improperly. If foreseeability is determined from the negligent completion of the project, then the negligent acts of the insured will almost never be “accidents” because, by definition, negligence requires that damages be foreseeable.”

14


4 theories apply to determine when an occurrence is triggered:

1. Manifestation – property damage occurs when it manifests itself / becomes discovered 2. Injury-in-fact- property damage occurs the moment there is damage irrespective of when the damage was discovered 3. Exposure-property damage occurs when there is the 1st exposure to the damage-causing conditions 4. Continuous- all policies are triggered if in effect during manifestation, actual damage, and exposure to damage-causing conditions

15


Here Come the Exclusions…

• Now that an “occurrence” potentially triggered CGL coverage for “property damage,” does an exclusion apply to bar or limit coverage for the “property damage”?

• In most jurisdictions, it is the exclusions that insurers rely on when there is a construction defect.

16


Exclusion K – Damage to “Your Product”

17



18



Liberty Mutual Fire Ins. Co. v. MI Windows & Doors, Inc., 131 So.3d 15 (Fla. 2d DCA 2013) (your product exclusion barred coverage to manufacturer of defective sliding glass windows)

19

© 2015 Tressler LLP

Presented by:

Matthew J. Devereux

[email protected]

Property Damage Claims Coverage

November 8, 2017

CALIFORNIA | ILLINOIS | NEW JERSEY | NEW YORK Matthew J. Devereux

[email protected]

» The “your product” exclusion precludes coverage for “property damage” arising out of a defect in an insured’s product that renders the product useless or less useful.

Exclusion k: Damage to “Your Product”

21


[email protected]

Fireguard Sprinkler Systems, Inc. v. Scottsdale Ins. Co., 864 F.2d 648, 654 (9th Cir. 1988):

» Exclusion precluded coverage for the costs of upgrading a sprinkler system.

» Liability insurance should not be considered a warranty or performance bond for general contractors, controlling their work.

» However, the exclusion is not intended to bar coverage for claims arising from the insured’s products, but for coverage for property damage to the products themselves.


22


[email protected]

Liberty Mut. Fire Ins. Co. v. MI Windows & Doors, Inc., 2013 WL 4734045 (Fla. App. 2 Dist. Sept. 4, 2013):

» The “your product” exclusion will not preclude coverage if the insured product was fundamentally changed into a new product prior to the loss. The alteration of the insured’s product must be significant.

» Adding a transom to doors not a significant alteration to fundamentally change product.


23


[email protected]

Imperial Casualty & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128 (3d Cir. Pa. 1988):

» Insured sold sheet metal which was then stamped into individual washers. The court found that the washers were a new product.


24


[email protected]

Valmont Energy Steel, Inc. v. Commercial Union Ins. Co., 359 F.3d 770 (2004):

» “Your product” exclusion unambiguously barred coverage for claims against the insured for damages arising out of the failure of the insured's steel flanges to meet contract specifications, and the insured’s misrepresentations that such flanges were in compliance with the specifications.


25


[email protected]

Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563 (Pa. 1983):

» Coverage excluded by “your product” exclusion where portico manufactured by insured collapsed and purchaser sought reimbursement for the costs of replacing the portico, repairing items stored beneath the portico and labor needed to remove the collapsed structure.


26


[email protected]

» Where the insured’s product causes property damage to third party property, the exclusion will not bar coverage for the third party property damage.


27


[email protected]

Armstrong World Industries, Inc. v. Aetna Cas. & Sur. Co., 45 Cal.App.4th 1 (Cal. App. 1996):

» The insured’s asbestos-containing products were installed in various buildings, and the building owners sued the insured for the cost of the asbestos removal and repair of the building.

» The court rejected the application of the “your product” exclusion to the suit brought against the insured because it held that the claims involved property damage to the buildings as a result of the insured’s product, not merely damages due to the asbestos products themselves.


28


[email protected]

Scottsdale Ins. Co. v. Tri-State Ins. Co. of Minnesota, 302 F.Supp.2d 1100 (D. ND 2004):

» The definition of “your product” indicates that products do not include real property. This clarification dispels the notion that a building completed by a general contractor is the product of the general contractor, such that any defect in the building would be excluded from coverage by the “your product” exclusion.

» Modular building units affixed to foundation became real property.


29


[email protected]

Auto-Owners Ins. Co. v. American Building Materials, Inc., 820 F.Supp.2d 1265, 1272 (M.D.Fla. 2011):

» Under Florida law, drywall became real property once it was installed and therefore the “Your Product” exclusion did not apply.


30


[email protected]

» This insurance does not apply to:

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.” This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

Exclusion l: Damage To “Your Work”

31


[email protected]

» “Your Work” means:

a. Work or operations performed by you or on your behalf; and

b. Materials, parts or equipment furnished in connection with such work or operations.

» “Your work” includes:

a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and

b. The providing of or failure to provide warnings or instructions.


32


[email protected]

» “Products-completed operations hazard”:

a. Includes all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work” except: 1) Products that are still in your physical possession; or

2) Work that has not yet been completed or abandoned. However, “your work” will be deemed completed at the earliest of the following times:

a) When all of the work called for in your contract has been completed.

b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.

c) When that part of the work to be done at the job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

b. Does not include “bodily injury” or “property damage” arising out of: 1) The transportation of property, unless the injury or damage arises out of a condition in or on a

vehicle not owned or operated by you, and that condition was created by the “loading or unloading” of that vehicle by any insured;

2) The existence of tools, uninstalled equipment or abandoned or unused materials; or

3) Products or operations for which the classification, listed in the Declarations or in a policy schedule operations are subject to the General Aggregate Limit.


33


[email protected]

» The “your work” exclusion precludes coverage for “property damage” to “your work” arising out of it or any part of it.

» “Your work” refers exclusively to the named insured’s work, materials used in conjunction therewith and warranties given by the named insured.


34


[email protected]

» “Your work” exclusion often addressed in tandem with the “occurrence” issue in addressing whether “property damage” resulting from faulty workmanship is covered.


35


[email protected]

» The “your work” exclusion requires that the “property damage” be included in the “products-completed operations hazard.”

» The named insured’s work must be completed or this exclusion is not applicable.


36


[email protected]

» Application of Exclusion J: Damage to “Your Property”

» If the named insured becomes liable for “property damage” to its work before operations are completed, one or more subparts to exclusion j. may apply to the claim.


37


[email protected]

» The “your work” exclusion only negates coverage if the only property damaged is that upon which the named insured worked. If some other property is damaged, the exclusion will not preclude coverage for that third party’s property damage.


38


[email protected]

Pine Oak Builders, Inc. v. Great American Lloyds Ins. Co., 279 S.W.3d 650 (2009)(Texas):

» Claims fell within “your work” exclusion where no allegations of property damage to property other than that upon which insured contractor worked.


39


[email protected]

Architex Ass'n v. Scottsdale Ins. Co., 27 So. 3d 1148 (Miss. 2010):

» “Your work” exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the named insured’s behalf by a subcontractor.


40


[email protected]

Pulte Home Corp. v. Fidelity & Guar. Ins. Co., 2004 WL 516216 (Va. Cir. Ct. Feb. 6, 2004)

» “Your work” exclusion in the context of an additional insured’s claim for coverage.

» Additional insured homebuilder (Pulte) not covered under subcontractors policy for installation of EIFS since “your work” exclusion precluded damage to named insured’s work.

» Pulte’s own CGL would not have precluded coverage since it was work of subcontractor.


41


[email protected]

Wanzek Constr., Inc. v. Emplrs. Ins., 679 N.W.2d 322 (Minn. 2004):

» Who qualifies as a subcontractor?


42


[email protected]

Nautilus Insurance v. Board of Directors of Regal Lofts Condominiums, 2014 U.S. App. LEXIS 16250 (7th Cir., August 21, 2014)

» Products-completed operations hazard exclusion


43

Exclusion M “Impaired Property”

Exclusion

Kristine M. Sorenson Walker Wilcox Matousek LLP

1001 McKinney Street, Suite 2000 Houston, Texas 77002

(713) 343-6580 [email protected]

EXCLUSION (m) “Property damage” to “impaired property” or property that has not been physically injured, arising out of: (1) A defect, deficiency, inadequacy, or dangerous condition in

“your product” or “your work”; or (2) A delay or failure by you or anyone acting on your behalf to

perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to “your product” or “your work” after it has been put to its intended use.

45

“Property damage” means

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

46

“Impaired property” means

tangible property, other than “your product” or “your work” that cannot be used or is less useful because:

a. It incorporates “your product” or “your work” that is known or thought to be defective, deficient, inadequate or dangerous; or

b. You have failed to fulfill the terms of a contract or agreement;

if such property can be restored to use by:

a. The repair, replacement, adjustment or removal of “your product” or “your work”; or

b. Your fulfilling the terms of the contract or agreement.

47

“Your product”

a. Means:

(1) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:

(a) You;

(b) Others trading under your name; or

(c) A person or organization whose business or assets you have acquired; and

(2) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.

48

“Your product” (continued)

b. Includes

(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your product”; and

(2) The providing of or failure to provide warnings or instructions.

c. Does not include vending machines or other property rented to or located for the use of others but not sold.

49

“Your work”:

a. Means:

(1) Work or operations performed by you or on your behalf; and

(2) Materials, parts or equipment furnished in connection with such work or operations.

b. Includes:

(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”, and

(2) The providing of or failure to provide warnings or instructions.

50

Purpose of Exclusion M • Applies when a third party’s property cannot be used because

the insured’s work or product, which is incorporated into the third party’s property, is defective or inadequate.

• Applies to contractors (“your work”) and manufacturers (“your product“).

• Viewed as a “business risk” exclusion – prohibits insured from recovering funds to correct deficiencies caused by its own defective performance.

• CGL policy is not a guarantee of the insured’s work. CGL policy is not a performance bond or warranty that the insured’s work or product is good.

• No coverage for “economic loss” or purely contractual damages claimed by the third party.

51

Purpose of Exclusion M

• To prevent the insured from recovering the cost of repairing or replacing the defective product or work, and/or for a third-party’s economic losses resulting from loss of use of its property.

• But, does Exclusion (m) apply if the defective product is permanently attached to a third-party’s property, and the third-party’s property is damaged when the defective product is ripped out and replaced?

52

U.S. Metals, Inc. v. Liberty Mutual Group, Inc., 490 S.W.3d 20 (Tex. 2015), reh’g denied June 17, 2016. • Certified questions to the Texas Supreme Court from the 5th

Circuit. 589 Fed. Appx. 659 (5th Cir. 2014).

• U.S. Metals sold flanges to Exxon to be installed at two refineries.

• A subcontractor welded the flanges to pipes. Once welded together, the flange/pipe combinations were coated and insulated to withstand high temperatures.

• During post-installation testing, Exxon discovered a leak in one of the flanges.

• U.S. Metals had subcontracted the manufacture of the flanges to Maass Flange Corporation.

• The flanges were improperly manufactured against industry standards.

• Exxon wanted to replace all flanges with new ones from a different manufacturer.

53

U.S. Metals, Inc. v. Liberty Mutual Group, Inc., 490 S.W.3d 20 (Tex. 2015), reh’g denied June 17, 2016.

• The refineries were shut down for several weeks while repairs were made.

• Exxon’s corporate representative testified that the leaks were discovered at the testing stage when the refineries were not operational.

• Exxon claimed damages in excess of $23 million.

• Exxon sued U.S. Metals and Maass in Texas state court. Exxon and U.S. Metals settled for $2.2 million.

54


• U.S. Metals requested coverage from Liberty Mutual, its commercial general liability insurer.

• Liberty Mutual declined coverage under Exclusion (k) and Exclusion (m).

• U.S. Metals sued Liberty Mutual in federal court. The court granted summary judgment to Liberty Mutual.

• U.S. Metals appealed to the 5th Circuit.

55


• Liberty argued that Exclusion m bars coverage because there is “physical damage” (i.e. loss of use) to “impaired property” (the Exxon facility) arising from U.S. Metal’s defective product (the flange) that was incorporated into someone else’s property (the pipes in the Exxon facility).

• Liberty argued that the exception to Exclusion m does not apply because (1) the Exxon facilities were not operational so there is no evidence the flanges were put to their intended use; and (2) there was no sudden and accidental physical injury to the flanges (just defective).

56


• U.S. Metal argued that Exclusion m does NOT apply because – Exxon’s facility was physically injured when the defective flanges were attached to the pipes (“incorporation theory”).

• U.S. Metal also argued that the exception to Exclusion m applies because – the flanges suddenly and accidentally failed during pressure testing, which led to the loss of use of the Exxon facilities.

57


• 5th Circuit certified four questions to the Texas Supreme Court, which were accepted.

• The Texas Supreme Court issued its decision on December 4, 2015.

• The four certified questions were distilled by the Texas Supreme Court into two inquires:

58


1. Did installation of the faulty flange constitute an injury to the whole product?

ANSWER: No. Installation of a defective product is not physical damage.

The court rejected the “incorporation theory” advanced by U.S. Metals - where “a product is considered physically damaged when its value is lessened by a faulty component.”

The court adopted the “actual harm theory” where “physical injury requires tangible, manifest harm and does not result merely upon the installation of a defective component in a product or system.”

Faulty flanges and the loss of use of the diesel units were not covered.

59

U.S. Metals, Inc. v. Liberty Mutual Group, Inc., 490 S.W.3d 20 (Tex. 2015), reh’g denied June

17, 2016. • 5 other U.S. courts have expressly rejected the

“incorporation theory”: FLORIDA: U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007).

TENNESSEE: Travelers Indem. Co. of Am. V. Moore & Assoc., Inc., 216 S.W.3d 302 (Tenn. 2007)

NEVADA: United National Ins. Co. v. Frontier Ins. Co., 99 P.3d 1153 (Nev. 2004).

OREGON: Wyo. Sawmills, Inc. v. Transp. Ins. Co., 578 P.2d 1253 (Ore. 1978).

GEORGIA: Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 746 S.E.2d 587 (Ga. 2013).

60


• 5 U.S. Courts have implicitly rejected the “incorporation theory”:

CONNECTICUT: Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961 (Conn. 2013).

SOUTH CAROLINA: Crossmann Cmtys. of N.C. Inc. v. Harleysville Mut. Ins. Co., 717 S.E.2d 589 (S.C. 2011).

NEW HAMPSHIRE: Concord Gen. Mut. Ins. Co. v. Green & Co. Bldg. & Dev. Corp., 8 A.3d 24 (N.H. 2010).

WISCONSIN: Vogel v. Russo, 613 N.W.2d 177 (Wis. 2000).

WASHINGTON: Mut. Of Enumclaw Ins. Co. v. T & G Constr., Inc., 199 P.3d 376 (Wash. 2008).

61


• Two U.S. courts followed the “incorporation theory”:

MONTANA: Swank Enters, Inc. v. All Purpose Servs., Ltd., 154 P.3d 52 (Mont. 2007).

WYOMING: Helm v. Bd. Of Cty. Comm’rs., 989 P.2d 1273 (Wyo. 1999).

62


2. Is property restored to use by replacing a faulty component when the property must be altered, damaged, and repaired in the process?

ANSWER: No. The coating, insulation and gaskets were destroyed when the faulty flanges were removed from the pipes. Those parts were replaced and not restored to their intended use.

63

U.S. Metals, Inc. v. Liberty Mutual Group, Inc., 2017 WL 830398 (S.D. Tex. Feb. 27, 2017). - REMAND.

What does this mean? • 5th Circuit remanded the case to the S.D. Texas to

apply the law set forth by the Texas Supreme Court. • The District Court held that Liberty Mutual must

indemnify U.S. Metals for the costs of welds, coating, insulation, and gaskets that were destroyed and replaced during the removal process.

• The defective flanges themselve are not covered even if they were destroyed when removed.

64

Recent Exclusion M Cases • Global Modular, Inc. v. Kadena Pacific, Inc., 15 Cal.App.5th 127,

222 Cal.Rptr.3d 819 (Cal. App. 2017)(Exclusion M does not apply because to delay damages incurred by third party after buildings constructed by the insured were damaged by rain).

• Phoenix Ins. Co. v. Ed Boland Construction, Inc., 229 F. Supp. 3d 1183 (D. Montana 2017)(Exclusion M precludes coverage for loss of use of a hydraulic crane and other equipment due to unforeseen circumstances that caused the insured’s work to be inadequate).

• Navigators Specialty Ins. Co. v. Guild Associates, Inc., 2016 WL 6947933 (S.D. Ohio Nov. 28, 2016)(fact issue as to whether Exclusion M applies to claim for loss of revenue caused by insured’s defective product).

65

Recent Exclusion M Cases

• Auto-Owners Ins. Co. v. High Country Coatings, Inc., 2017 WL 2537093 (D. Colo. June 12, 2017)(Exclusion M does not apply because the defective coating applied by the insured damaged the floor owned by a third party).

• Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 876 N.W.2d 72 (Wis. 2016)(Exclusion M precludes coverage because the incorporation of the insured’s defective ingredient into a probiotic supplement tablet did not result in loss of use of property, nor was there sudden and accidental property damage).

• Auto-Owners Ins. Co. v. Timbersmith, Inc., 2016 WL 3356800 (D. Utah June 15, 2016)(Exclusion M bars coverage for loss of use of property caused by defective framing).

66


• Park-Ohio Holdings Corp. v. Liberty Mutual Fire Ins. Co., 142 F. Supp. 3d 556 (N.D. Ohio 2015)(coverage for replacement of defective washers covered under the exception to Exclusion M for “loss of use of other property arising out of sudden and accidental physical injury to ‘your product’ . . . after it has been put to its intended use.”

• Artisan & Truckers Casualty Co. v. Hanover Ins. Co., 126 F. Supp. 3d 998 (N.D. Ill. 2015)(Exclusion M precludes coverage for loss of stolen cargo because the cargo was not physically injured but there was a loss of use of the cargo).

67


• Thruway Produce, Inc. v. Massachusetts Bay Ins. Co., 114 F. Supp. 3d 81 (W.D.N.Y. 2015)(tainted baby food is not “impaired property” because it cannot be “restored to use by repair, removal, or replacement of the work or product, or by fulfilling the terms of the contract.”)

• Wardcraft Homes, Inc. v. Employers Mut. Casualty Co., 70 F.Supp. 3d 1198 (D. Co. 2014)(Exclusion M precludes coverage for loss of use of modular home that was defective, but could be restored to use by the “repair, replacement, adjustment or removal” of the insured’s work or product or if the insured fulfilled the terms of the contract or agreement.)

68


• XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F. Supp. 3d 728 (E.D. La. 2014)(Exclusion M does not apply because the property would not become usable by fixing the insured’s defective work).

• North Star Mutual Ins. Co. v. Rose, 27 F. Supp. 3d 1250 (E.D. Okla. 2014)(Exclusion M does not apply because other property would need to be damaged to fix the defective HVAC system).

• Regional Steel Corp. v. Liberty Surplus Ins. Corp., 173 Cal. Rptr. 3d 91 (Cal. App. 2014)(Exclusion M bars coverage for allegations that the insured failed to properly perform its work, but where no property damage occurred).

69


• Netherlands Ins. Co. v. Main St. Ingredients, LLC, 745 F.3d 909 (8th Cir. 2014)(Exclusion M does not apply to tainted oatmeal, because it could not be restored to use).

• Harleysville Worcester Ins. Co. v. Paramount Concrete, Inc., 10 F. Supp. 3d 252 (D. Conn. 2014)(Exclusion M does not apply because the insured’s product – defective liquid shotcrete – could not be removed from the property in which it was inserted).

70

Work of Subcontractors - Exclusion CG 22 94

Exclusion (l) is replaced by the following:

This insurance does not apply to:

l. Damage To Your Work

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”

71


“Products-completed operations hazard”:

Includes all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product” or “your work.”

72


“Products-completed operations hazard” exceptions:

(1) Products that are still in your physical possession; or (2) Work that has not yet been completed or abandoned. However, “your work” will be deemed completed at the earliest of the following times. a. When all of the work called for in your contract has been completed. b. When all of the work to be done at the job site has been completed if

your contract calls for work at more than one job site. c. When that part of the work done at a job site has been put to its

intended use by any person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

73


“Products-completed operations hazard” does not include: “bodily injury” or “property damage” arising out of: (1) The transportation of property, unless the injury or

damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the “loading or unloading” of that vehicle by any insured;

(2) The existence of tools, uninstalled equipment or abandoned or unused materials; or

(3) Products or operations for which the classification, listed in the Declarations or in a policy schedule, states that products-completed operations are subject to the General Aggregate Limit.

74

Purpose of Exclusion CG 22 94

• General contractors hire subcontractors to perform work on a portion of the project.

• General contractors can be sued for defective work by subs.

• Exclusion (l) (“your work” exclusion) precludes coverage for damage to the general contractor’s work if the damage arises out of any part of it and occurs after the work is completed.

• Exclusion (l) contains an exception for work performed by a subcontractor on the general contractor’s behalf.

75

Purpose of CG 22 94

• CG 22 94 eliminates the subcontractor exception to Exclusion (l).

• Faulty construction is viewed as a “business risk” and not insurable.

• CGL policy is not a guarantee or warranty of the subcontractor’s work.

• Eliminates completed operations coverage for general contractors.

76

Cases involving CG 22 94

• Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007).

• U.S. Fire Ins. Co. v. J.S. U.B., Inc., 979 So.2d 871 (Fla. 2007).

• Builders Mut. Ins. Co. v. Kalman, 2009 WL 4807003 (D.S.C. Dec. 8, 2009).

• Builders Mut. Ins. Co. v. Wingard Properties, Inc., 2010 WL 3069544 (D.S.C. July 1, 2010).

• Haskins Const., Inc. v. Mid-Continent Cas. Co., 2011 WL 5325734 (D. Mont. Nov. 3, 2011).

77

Cases involving CG 22 94

• Lukes v. Mind-Continent Cas. Co., 2013 WL 496203 (D. Mont. Feb. 11, 2013).

• Penn Nat. Sec. Ins. Co. v. Design-Build Corp., 2012 WL 2712555 (D.S.C. July 9, 2012).

• Grinnell Mut. Reinsurance Co. v. Wollack Const., Inc., 2010 WL 4121906 (D. Minn. Oct. 15, 2010).

• American Home Assurance Co. v. SMG Stone Co., Inc., 119 F. Supp. 3d 1053 (N.D. Cal. 2015).

78

Documents

Construction Property Damage Claims: CGL Exclusions K, L ...media.straffordpub.com/products/construction...Nov 08, 2017 · Here Come the Exclusions… •Now that an “occurrence”