IRMI Expert Commentary: More Confusion Regarding the "Damage to Property" Exclusion

Ward Greenberg Partner David Knapp is an expert commentator for International Risk Management Institute, Inc. Read his May article, "More Confusion Regarding the 'Damage to Property' Exclusion," below:

David Knapp

The 10th Circuit Court of Appeals recently weighed in on the debate over the meaning of the phrase "that particular part" in the "damage to property" exclusion in standard commercial general liability (CGL) policies. Despite the seeming precision of the phrase, the court found that it was ambiguous.

One of the so-called business risk exclusions, the "damage to property" exclusion, narrows coverage for certain types of property damage claims. A principal source of disagreement among courts has been the words "that particular part," which is found in paragraphs j(5) and j(6) of the exclusion.

Damage To Property

"Property damage" to:

. . .

(5) That particular part of any real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

A September 2013 IRMI Expert Commentary article by Craig Stanovich, "Broad Form Property Damage—A Look Back," recounts the drafting history of the phrase "that particular part" in the damage to property exclusion. The phrase originally was included in a separate broad form property damage endorsement and was intended to limit the scope of the exclusion in pre-1985 general liability policies for property damage to property in the insured's care, custody, or control.

The 1985 edition of the standard Insurance Services Office, Inc. (ISO), CGL policy incorporated the phrase into the damage to property exclusion, where it has remained since. According to Mr. Stanovich, ISO's explanation of that language, expressed in a 1979 memorandum titled "Broad Form Property Damage Coverage Explained," made clear that the addition of the words "that particular part" was intended to "precisely define the extent to which damage to property on which the insured is actually working is excluded.… The intent … [is] to exclude only damage to the particular property on which the insured is working."1

Thus, the intent of adding the phrase to j(5) and j(6) of the damage to property exclusion was to exclude only damage to the specific unit of property on which the insured was actually working, or which must be restored, repaired, or replaced because the insured's actual work on it was incorrectly performed.

Read the full article here.

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Copyright 2019, International Risk Management Institute, Inc.

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