Claims - June 2016

36  JUNE 2016  Claims Magazine  PropertyCasualty360.com
In other words, the “your product”
The “your work” and “your product”
exclusions are comparable, and both are
often cited by insurers in products liability
and faulty workmanship claims. For ex-
ample, in Thruway Produce, Inc. v. Mass.
Bay Ins. Co., 114 F. Supp. 3d 81 (W.D.N. Y.
2015), the insurer relied on both exclu-
sions to deny coverage under the policy
when the insured supplied poisonous
apples that were ultimately incorporated
into baby food. The court, however, held
that the exclusions did not apply, because
the poisoned apples damaged “other prop-
erty” — the baby food. Similarly, in Har-
leysville Worcester Ins. Co. v. Paramount
Concrete, Inc., 10 F. Supp. 3d 252, 266 (D.
Conn. 2014), the court held that the in-
sured’s product (shotcrete), which caused
a pool to crack and leak, constituted dam-
age caused by the insured’s product, not to
the insured’s product, and as a result, the
“your product” exclusion did not apply.

Case law in recent years has confirmed that the “your work” and “your product” exclusions do not preclude coverage for third party property damage. (See Wood v. Preferred Contrs. Ins. Co. Risk Retention Grp. LLC, CV 14-128-M-DLC, 2015 U.S. Dist. LEXIS 151140, 10 (D. Mont. Nov. 6, 2015)). For example, damage to carpeting caused by a contractor’s defective installation of windows is covered under most CGL policies. Similarly, faulty materials and workmanship causing a home to be continuously exposed to moisture, producing damage to surrounding structural elements, is covered. (See, e.g., Pulte Homes of N.M., Inc. v. Ind. Lumbermens Ins. Co., 367 P.3d 869 (N.M. Ct. App. 2015)).

In Magnus, Inc. v. Diamond State Ins.
Co., 101 F. Supp. 3d 1046, 1049-50 (D.
Kan. 2015), a manufacturer supplied
defective aluminum adapters to another
company, which utilized the adapters in
arrows that were being sold to customers.
The purchaser subsequently informed the
manufacturer that it was experiencing
problems with the adapters “seizing,” or
becoming permanently affixed to the ar-
rows. As a result, the purchasers’ custom-
ers could not remove the broadheads or
perform “screw-off functions” on blades
or arrow tips. Consequently, the arrows
became worthless or had very little value
and the purchasers’ customers were not
satisfied with the product.
Eventually, the purchaser sued the
manufacturer for lost profits and earn-
ings, and the manufacturer’s insurance
company disclaimed coverage, citing
among other provisions the “your prod-
uct” exclusion in the policy. However, the
court rejected the insurer’s position and
held that because the purchaser was not
seeking damages for property damage to
the manufacturer’s product, but rather for
damages (lost profits) caused by damage
to third parties’ property (i.e., its custom-
ers’ arrows), the “your product” exclusion
did not apply.

In a majority of jurisdictions, standard-form CGL policies cover claims of faulty workmanship and product defects for damage caused to other work or other products. Although insurers often cite various policy exclusions, these exclusions do not necessarily apply, and policyholders should carefully review all of the underlying facts and have a complete understanding of their policy’s provisions and exclusions, as well as the applicable law in their respective jurisdictions, in order to determine whether an underlying claim is covered or at least potentially covered.

Matthew D. Stockwell, counsel with Pillsbury Winthrop Shaw Pittman LLP in New York, focuses his practice on representing policyholders in insurance coverage and construction litigation. In August 2015, Stockwell was part of a team that tried a product liability coverage dispute to a $55 million verdict, including

$46 million in punitive damages in Alameda County, Calif. Amanda Senske is an associate with Pillsbury Winthrop Shaw Pittman LLP in New York, and has experience litigating insurance coverage disputes, including property insurance and business interruption claims.