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CD Coverage http://cdcoverage.com/wordpress Insurance Coverage for Construction Defect Claims Wed, 24 Jun 2015 17:55:11 +0000 en-US hourly 1 http://wordpress.org/?v=3.4.1 Florida Duty to Defend a Chapter 558 Right to Repair Notice http://cdcoverage.com/wordpress/?p=1203&utm_source=rss&utm_medium=rss&utm_campaign=florida-duty-to-defend-a-chapter-558-right-to-repair-notice http://cdcoverage.com/wordpress/?p=1203#comments Wed, 24 Jun 2015 17:55:11 +0000 admin http://cdcoverage.com/wordpress/?p=1203 Continue reading ]]> In Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Co., 2015 WL 3539755 (S.D. Fla. 2015), Altman was the general contractor for a residential condominium project. The condominium association served Altman with Chapter 558 notices. A Chapter 558 notice is a statutory prerequisite to a property owner’s construction defect lawsuit and provides the contractor with an opportunity to respond and avoid litigation. Altman demanded that its CGL insurer, Crum & Forster, provide a defense to the Chapter 558 notices by hiring counsel to represent Altman’s interests. While not disputing that the claimed defects may be covered under the policy, Crum & Forster denied any duty to defend against the notices on the basis that they did not constitute a “suit.” Altman filed suit. The federal trial court agreed with Crum & Forster and granted partial summary judgment in its favor.   The policy provided that Crum & Forster had a duty to defend any “suit” seeking covered damages.  The policy defined “suit” in pertinent part as a “proceeding.” Relying on definitions from Black’s Law Dictionary, the court states that a “proceeding” necessarily involves both a forum and a decision maker. Because Chapter 558 provides only “a mechanism to guide the parties into discussions with one another,” and does not provide any setting for the parties to appear before anyone who would assist with the process, it does not qualify as a “proceeding” of any kind.

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South Carolina “your work” exclusion, “get to” costs http://cdcoverage.com/wordpress/?p=1198&utm_source=rss&utm_medium=rss&utm_campaign=south-carolina-your-work-exclusion-get-to-costs http://cdcoverage.com/wordpress/?p=1198#comments Fri, 25 Jul 2014 14:51:45 +0000 admin http://cdcoverage.com/wordpress/?p=1198 Continue reading ]]> In Precision Walls, Inc. v. Liberty Mutual Fire Insurance Co., No. 2013-000787 (S.C. Ct. App. July 23, 2014), SYS was the general contractor for a project.  SYS contracted with Precision for the supply and installation of exterior insulation board, to include the taping of all joints. After Precision completed its work, another subcontractor began construction of the brick veneer wall over the insulation board.   During construction of the brick wall, some of the joint sealing tape installed by Precision began to come loose.  To correct the problem, the existing portion of the brick veneer wall had to be torn down, all of the joint sealing tape removed and replaced, and the brick veneer wall rebuilt.  SYS deducted the cost of tearing down and rebuilding the brick veneer wall from Precision’s contract.  Precision sought reimbursement for this amount from its CGL policy issued by Liberty Mutual.  Liberty Mutual denied coverage and Precision filed a declaratory judgment action.  The trial court entered judgment for Liberty Mutual determining that the amount sought by Precision did not constitute damages because of “property damage” caused by an “occurrence,” and, even assuming it did, all such damages fell within the “your work” exclusion.  On appeal, the intermediate court of appeal affirmed.  Applying South Carolina law, the court held that all of the damages fell within the “your work” exclusion.  The court said it assumed without deciding that the damages were because of “property damage” caused by an “occurrence.”  The court determined that “the defective tape, and all costs associated with its replacement, fall squarely within the exclusion.”

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New Jersey/New York “occurrence” http://cdcoverage.com/wordpress/?p=1194&utm_source=rss&utm_medium=rss&utm_campaign=new-jerseynew-york-occurrence http://cdcoverage.com/wordpress/?p=1194#comments Thu, 24 Jul 2014 18:57:33 +0000 admin http://cdcoverage.com/wordpress/?p=1194 Continue reading ]]> In National Union Fire Insurance Co. of Pittsburgh, PA v. Turner Construction Co., 986 N.Y.S.2d 74 (N.Y. App. Div. 2014), Turner was the general contractor for a high rise office building constructed in New Jersey for owner GSJC.  Turner subcontracted with Permasteelisa for the building’s exterior curtain wall which consisted of granite and glass with an attached network of decorative pipe rails.  A segment of the pipe rails fell from the building onto the street.  GSJC determined that a significant percentage of the pipe rail connections to the curtain wall did not conform to specifications or were defective.  GSJC sued Turner and Permasteelisa in New Jersey state court for breach of contract, breach of warranty, and negligence, seeking damages for the damage to the curtain wall and the danger of additional pipe rail falling in the future.  National Union, which had issued an OCIP policy for the project, defended Turner and Permasteelisa under a reservation of rights and then filed a declaratory judgment action in New York state court.  The New York trial court entered judgment for National Union.  On appeal, the intermediate court of appeals affirmed.   As to choice of law, the court stated that

it is undisputed that the law of New Jersey governs this action, which turns on insurance policy interpretation, and that New Jersey and New York law are consistent as to the issues in dispute here.

The court then held that, under both New York and New Jersey law, faulty workmanship which results in damage to the insured’s work only, regardless of whether any of the faulty work was performed by the insured’s subcontractor, does not constitute an “occurrence.”  The court rejected the argument that National Union’s expansion of the definition of “occurrence” beyond an “accident,” to also include an “event or happening,” dictated a different result:

[T]he addition of “happening” or “event” to the definition of “occurrence” does not change the fact that fortuity is still an essential consideration under New Jersey and New York law when determining whether there is coverage under such a policy, and a claim for faulty workmanship simply does not involve fortuity.


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Florida “property damage” caused by an “occurrence” and “your work” exclusion http://cdcoverage.com/wordpress/?p=1191&utm_source=rss&utm_medium=rss&utm_campaign=florida-property-damage-caused-by-an-occurrence-and-your-work-exclusion http://cdcoverage.com/wordpress/?p=1191#comments Fri, 18 Jul 2014 15:42:23 +0000 admin http://cdcoverage.com/wordpress/?p=1191 Continue reading ]]> In J.B.D. Construction, Inc. v. Mid-Continent Casualty Co., * Fed.Appx. *, 2014 WL 3377690 (11th Cir. 2014), claimant property owner Sun City contracted with insured general contractor J.B.D. for the construction of a fitness center.  The fitness center was to be physically connected to an existing Sun City building.  J.B.D. utilized subcontractors for some of the work.  Shortly after completion, leaks developed in the fitness center’s roof, windows and doors which J.B.D. attempted to fix.  After Sun City refused to make the final contract payment, J.B.D. sued Sun City for contract amounts owed.  Sun City counterclaimed for the construction defects, alleged damage to the fitness center and other property.  J.B.D. tendered defense of the counterclaim to its CGL insurer Mid-Continent.  After Mid-Continent failed to agree to defend, J.B.D. settled with Sun City, paying Sun City $182K.  Following several demands from J.B.D. for reimbursement of defense costs and the settlement amount, Mid-Continent tendered the defense costs minus a deductible.  J.B.D. then sued Mid-Continent for breach of duties to defend and indemnify.   On cross motions for summary judgment, the federal district trial court entered judgment for Mid-Continent, finding no duties to defend or indemnify.  On appeal, the Eleventh Circuit reversed on the duty to defend while affirming on the duty to indemnify.  Applying Florida law, the court first held that the defective work, including the defective installation of the fitness center’s windows, doors, and roof, did not constitute “property damage.”  Thus, the costs to repair or replace the defective work did not constitute damages because of “property damage.”  The court next held that, while damage to other portions of the fitness center would constitute “property damage” caused by an “occurrence,” all such “property damage” fell within the “your work” exclusion.  Although some of the “property damage” arose from work performed by J.B.D.’s subcontractors, the Mid-Continent policy was endorsed to remove the subcontractor work exception to the “your work” exclusion.  As a result, the only potential coverage would be for damage to property other than the fitness center, such as the adjacent structure to which the fitness center was attached or the contents of the fitness center.  The court held that, because the Sun City counterclaim alleged damage to both the fitness center and “other property,” it alleged the potential for damage to non-fitness center property thus triggering a duty to defend.   Mid-Continent apparently conceded this at oral argument.  However, because there was nothing in the record indicating that any portion of the $182K settlement amount was in fact for the repair of physical damage to non-fitness center property, Mid-Continent did not have a duty to indemnify.  Buried in a footnote, the court rejected J.B.D.’s “loss mitigation” argument—that because the repair of the defective work prevented future damage to non-fitness center property, the repair costs should be covered.  The court states:

To accept J.B.D.’s argument would defeat the distinction between covered and uncovered “property damage” that is well-settled under Florida law. Because the cost to repair defective work, which is expressly not covered, will almost always also mitigate potential damage to other property, which is covered, an uncovered claim for costs to repair defective work would instantly be transformed into a covered claim for “mitigation costs.” Absent some unique circumstances, none of which we can find here, we refuse to adopt this rule.

The Eleventh Circuit remanded the case back to the district court for a determination of J.B.D.’s damages resulting from Mid-Continent’s breach of its duty to defend.  The court states that such damages could include “consequential damages”  but does not specify what that could include.

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Florida Self-Insured Retention Satisfaction and Made Whole Doctrine http://cdcoverage.com/wordpress/?p=1181&utm_source=rss&utm_medium=rss&utm_campaign=florida-self-insured-retention-satisfaction-and-made-whole-doctrine http://cdcoverage.com/wordpress/?p=1181#comments Wed, 05 Mar 2014 15:12:16 +0000 admin http://cdcoverage.com/wordpress/?p=1181 Continue reading ]]> Intervest Construction of Jax, Inc. v. General Fidelity Insurance Co., * So.2d * (Fla. 2014), the issue was whether the insured general contractor could satisfy the SIR in its CGL policy with funds it received from the insurer of a subcontractor in settlement of the general contractor’s contractual indemnity claim against that subcontractor. ICI was the general contractor for a residence sold to Ferrin. Several years after completion, Ferrin suffered injuries in a fall while using attic stairs installed by ICI’s subcontractor Custom Cutting. Ferrin sued ICI but not Custom Cutting. ICI was insured by General Fidelity with a $1M SIR. ICI sought contractual indemnity from Custom Cutting. The Ferrin suit was ultimately settled for $1.6M. Custom Cutting’s CGL insurer paid $1M to ICI to resolve ICI’s contractual indemnity claim. Using the $1M paid on behalf of Custom Cutting and $300K of its own funds, ICI paid $1.3M to Ferrin. General Fidelity paid the remaining $300K with an agreement with ICI that each was entitled to seek reimbursement of $300K from the other. ICI filed suit in Florida state court. General Fidelity removed to federal court. The Eleventh Circuit certified the relevant questions to the Supreme Court of Florida.

The Florida Supreme Court first held that the General Fidelity SIR allowed ICI to satisfy the SIR through indemnification payments received from a third party. While the SIR provision stated that it must be satisfied by the insured, it did not include any language proscribing the source of the funds used by the insured to satisfy the SIR. The court distinguished other decisions where the SIR endorsement expressly stated that payments by others, including other insurers, could not satisfy the SIR. The court also relied on the fact that ICI “hedged its retained risk” by paying for its entitlement to contractual indemnification from its subcontractor years prior to purchasing the General Fidelity policy.

The court next addressed General Fidelity’s argument that, pursuant to the ISO standard “Transfer of Rights of Recovery Against Others To Us” provision, the $1M received from Custom Cutting’s insurer could not be used to satisfy the SIR because ICI’s right to recover that amount from Custom Cutting had been transferred to General Fidelity pursuant to the policy. The court rejected this argument, holding that the common law “made whole” doctrine applied. Under the “made whole” doctrine, when insured and insurer both have rights of recovery against a third party, the insured has priority until it is “made whole.” Here it meant that ICI would be entitled to be made whole before General Fidelity was entitled to any portion of ICI’s recovery from Custom Cutting. While the “made whole” doctrine can be abrogated by contract, the court held that the General Fidelity policy did not do this because the “Transfer of Rights” provision “did not address the priority of reimbursement” or otherwise “provide that it abrogates the ‘made whole doctrine’.”

The court’s opinion illustrates the general rule that there are few if any general rules applicable to SIR provisions; each will generally be strictly construed in favor of the policyholder based on the particular language utilized. The decision is also significant in that it establishes that the standard ISO “Transfer of Rights” provision does not abrogate the Florida common law “made whole” doctrine.

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Pennsylvania “occurrence” http://cdcoverage.com/wordpress/?p=1163&utm_source=rss&utm_medium=rss&utm_campaign=pennsylvania-occurrence-2 http://cdcoverage.com/wordpress/?p=1163#comments Sun, 29 Dec 2013 17:40:07 +0000 admin http://cdcoverage.com/wordpress/?p=1163 Continue reading ]]> In Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2013 WL 6237312 (Pa. Super. 2013), insured Indalex was sued in multiple underlying actions, filed in states other than Pennsylvania, alleging that Indalex defectively designed or manufactured windows and doors resulting in leaks causing damage beyond the Indalex product, including mold, wall cracks, and personal injuries.   The complaints included strict liability, negligence, breach of warranty, and breach of contract causes of action.   After Indalex’s primary CGL policies exhausted, Indalex filed a declaratory judgment action against its umbrella insurer National Union.  The Pennsylvania state trial court entered summary judgment for National Union, holding that, following Kvaerner, the underlying complaints did not allege an “occurrence.”  The intermediate court of appeals reversed, holding:

Because the underlying complaints alleged defective products resulting in property loss, to property other than [the insured’s] products, and personal injury, we conclude there was an “occurrence.”

The court distinguished Kvaerner on two grounds.  First, the court states that Kvaerner is limited to where the underlying complaint alleges (1) breach of contract and breach of warranty causes of action only, and (2) damage to the insured’s work only.  Here, the underlying complaints alleged tort causes of action and damage to property other than the insured’s work.  Second, the definition of “occurrence” in the National Union policy included the limitation that the damage be neither “expected nor intended from the standpoint of the insured.”  The underlying complaints did not allege that the insured subjectively expected “damages such as the mold related health issues.”  

The court also distinguished  Millers Capital Ins. Co. v. Gambone Bros. Development Co., Inc., 941 A.2d 706 (Pa. Super. 2007) by suggesting that a bad workmanship claim against a building contractor, as in Gambone, is materially different from a bad product claim against an off-the shelf product manufacturer as in Indalex.    Other Pennsylvania decisions suggest the failure of an off-the-shelf product may not be foreseeable, and thus constitute an “occurrence,” whereas the failure of a product to meet contract requirements or specifications is a foreseeable business risk and thus not an “occurrence.”

With respect to the tort causes of action, the court effectively retreated from its application of the “gist of the action” doctrine it had applied in Abbott Furnace in determining that a tort claim was not sufficiently plead and the gist of action was breach of contract such that Kvaerner applied.  The court rejected application of the doctrine stating that the legal sufficiency of a tort claim should be determined in the underlying action, not in the separate coverage action.

Indalex is most significant for its express rejection of the “gist of the action” doctrine in insurance coverage actions.    Thus, in determining a duty to defend under Pennsylvania law, an insurer will no longer be able to disregard any tort causes of action that are plead with contract based causes of action.  While Indalex arguably signals a drawback on the broadening application of Kvaerner, it is limited for two reasons.  First, the definition of “occurrence” in Indalex included the “neither expected nor intended from the standpoint of the insured” limitation.  As such, insurers can correctly argue that Indalex is limited to policies including that definition of “occurrence.”  Second,  Indalex is arguably limited to claims against an off-the shelf product manufacturer and thus Kvaerner and Gambone still apply to claims against building contractors. Indalex also casts some doubt on the viability of the federal court decision Specialty Surfaces International, Inc. v. Continental Cas. Co., 609 F.3d 223 (3rd Cir. 2010) which applied Kvaerner even where the damage was not limited to the insured’s work.

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South Carolina “occurrence” and number of “occurrences” http://cdcoverage.com/wordpress/?p=1156&utm_source=rss&utm_medium=rss&utm_campaign=south-carolina-occurrence-and-number-of-occurrences http://cdcoverage.com/wordpress/?p=1156#comments Tue, 29 Oct 2013 00:08:38 +0000 admin http://cdcoverage.com/wordpress/?p=1156 Continue reading ]]> In Auto-Owners Insurance Co. v. Rhodes, No. 27316 (S.C. Sept. 25, 2013), claimant Rhodes contracted with insured Eaton for the design, fabrication, and installation of three outdoor advertising signs. After the signs were installed, one started to lean.  At Rhodes’ request, Eaton repaired the leaning sign. Shortly thereafter, one of the other signs fell across a roadway which prompted the state to order Rhodes to remove the two remaining signs. Eaton’s CGL insurer Auto-Owners paid for damages caused by the sign that fell but declined coverage for the remaining damages.  Rhodes sued Eaton alleging negligence  and Auto-Owners filed a declaratory judgment action.    In the declaratory judgment action, Auto-Owners conceded that the falling of the one sign constituted an “occurrence.”  The South Carolina Supreme Court held that the state-ordered removal of the two remaining signs also constituted an “occurrence” because their mandated removal would not have occurred “but for” the first sign falling.  Because all three signs were constructed at the same time, there was a single continuous “occurrence” with progressive damage. The court expressly did not address whether there was “property damage” or any exclusions applied.

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Alabama no subcontractor work exception means no “property damage” caused by an “occurrence” http://cdcoverage.com/wordpress/?p=1146&utm_source=rss&utm_medium=rss&utm_campaign=alabama-no-subcontractor-work-exception-means-no-property-damage-caused-by-an-occurrence http://cdcoverage.com/wordpress/?p=1146#comments Wed, 16 Oct 2013 01:04:33 +0000 admin http://cdcoverage.com/wordpress/?p=1146 Continue reading ]]> In Owners Insurance Co. v. Jim Carr Homebuilder, LLC, No. 1120764 (Ala. Sept. 20, 2013)(application for rehearing pending), insured general contractor JCH, utilizing subcontractors, built a home for the Johnsons.  Following completion, the Johnsons sued JCH for breach of contract, fraud, negligence and wantonness, alleging defective construction resulted in moisture penetration property damage to the home.  JCH was defended under reservation of rights by its CGL insurer Owners which also filed a declaratory judgment action.   The underlying action resulted in a judgment in favor of the Johnsons against JCH, based on findings that defective work of JCH subcontractors resulted in property damage to other components of the home.  In the declaratory judgment action, the Supreme Court of Alabama held that, absent damage to property other than JCH’s work—here the entire home—there was no “property damage” caused by an “occurrence.”   The significance, or lack thereof, of the court’s decision is buried in footnote 4 where the court distinguishes its prior decision in Town & Country Property, LLC v. Amerisure Insurance Co., on the basis that the Owners CGL policy did not include the subcontractor work exception to exclusion l.   Thus, under Town & Country, if the CGL insurer has not removed the subcontractor work exception to exclusion l., damage to non-defective work resulting from defective subcontractor work constitutes “property damage” caused by an “occurrence.”

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Alabama “property damage” caused by an “occurrence” http://cdcoverage.com/wordpress/?p=1111&utm_source=rss&utm_medium=rss&utm_campaign=alabama-property-damage-caused-by-an-occurrence http://cdcoverage.com/wordpress/?p=1111#comments Mon, 02 Jul 2012 22:21:32 +0000 admin http://cdcoverage.com/wordpress/?p=1111 Continue reading ]]> In Town & Country Property, LLC v. Amerisure Insurance Co., No. 1100009 (Ala. June 29, 2012), property owner Town & Country contracted with insured general contractor Jones-Williams for the construction of a car dealership.  All of the construction work was performed by Jones-Williams’ subcontractors.  After completion, Town & Country sued Jones-Williams for defective construction.  Jones-Williams’ CGL insurer Amerisure defended. The case was tried and a judgment was entered against Jones-Williams in favor of Town & Country.  After Amerisure denied any obligation to pay the judgment, Town & Country sued Amerisure in a statutory direct action.  The trial court entered judgment in favor of Amerisure and against Town & Country.  On appeal, on October 21, 2011, the Alabama Supreme Court affirmed in part.  Relying on its prior decisions in United States Fid. & Guar. Co. v. Warwick Development Co., Inc., 446 So.2d 1021 (Ala. 1984) and Moss v. Champion Ins. Co., 442 So.2d 26 (Ala. 1983), the court reaffirmed that, even under the 1986 revision of the ISO CGL form which gives back coverage for property damage caused by work performed by a subcontractor, faulty workmanship standing alone does not constitute an “occurrence.”  The court goes on to state that faulty  workmanship may  lead  to an occurrence if it subjects personal   property   or   other  parts  of  the  structure to “continuous  or  repeated  exposure”  to  some other  “general harmful  condition” (e.g. the rain in Moss) and, as a result of that   exposure,  personal  property or other  parts  of  the structure are damaged. Unable  to  determine on the record before it whether any part of the judgment  against  Jones-Williams was for damages other than the cost of repairing or replacing the defective work, such as property damage to furnishings or non-defective portions of the building, which would fall  within  the subcontractor work  exception  to the “your work” exclusion  and thus be covered, the court remanded to the trial court for that determination.

On  remand,  the  trial  court  determined  that  $257,500.00  of the $650,100.00  judgment  against Jones-Williams  was for the repair or replacement  of  defective  work,  subtracted  that  amount  from the judgment,  and entered judgment in the amount of $392,600 for Town & Country.   Amerisure appealed  that judgment.  On June 29, 2012, the Alabama  Supreme  Court, with its October 21, 2011 decision still not released  for  publication, reversed.  The court  determined that, except   for   non-defective   ceiling   tiles  damaged  by moisture penetrating   through   a defectively  constructed  roof  and other components,  all  of  the  other parts of the building which suffered moisture penetration damages were defectively constructed themselves. The court states:

Even  if  these  items  suffered  further damage as a result of other  defective  construction,  it would  be inappropriate to consider  that  damage  covered  under  the  CGL  policy if the inherent   defects   caused   by faulty  construction  already necessitated the repair or replacement of these items.

The court held that only the property damage to the non-defective ceiling tiles constituted “property damage” caused by an “occurrence.”   The court reversed and remanded back to the trial court for entry of judgment for Town & Country for $600.00 for the cost to replace the ceiling tiles.

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North Carolina exclusion j(6) “that particular part” http://cdcoverage.com/wordpress/?p=1100&utm_source=rss&utm_medium=rss&utm_campaign=north-carolina-exclusion-j6-that-particular-part http://cdcoverage.com/wordpress/?p=1100#comments Fri, 02 Dec 2011 18:39:53 +0000 admin http://cdcoverage.com/wordpress/?p=1100 Continue reading ]]> In Alliance Mutual Insurance Co. v. Dove, 714 S.E.2d 782 (N.C. Ct. App. 2011), claimant Murphy-Brown hired insured Dove to repair a broken elevator belt in a grain elevator in Murphy-Brown’s feed mill.   The elevator was inside a metal duct and, to access the broken belt, Dove had to cut out a section of the duct.  After replacing the belt, Dove welded the metal section back to the duct.  Immediately after Dove completed the welding, dust inside the duct ignited, causing an explosion in the elevator, resulting in property damage to the elevator and other property.  Murphy-Brown sued Dove for negligence seeking damages for the repair and replacement of the elevator, repair and replacement of the other property, increased grain handling costs during the repairs, and loss of use.  Dove’s CGL insurer Alliance defended Dove under a reservation of rights.  Alliance then sued Dove seeking a judicial declaration of no duty to defend or indemnify.    Alliance and Dove agreed that the damages sought by Murphy-Brown constituted damages because of “property damage” caused by an “occurrence.” However, Alliance contended that all of the damages fell within the following exclusion:

We do not pay for property damage to that specific part of any property that must be restored, repaired, or replaced because of faults in your work.

This exclusion is the functional equivalent of ISO CGL 00 01 exclusion j(6) that applies to property damage to “that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”  Dove agreed that the damages for the repair and replacement of the grain elevator fell within the exclusion, but contended that the exclusion did not apply to the damages for the repair and replacement of the other property, the additional grain handling costs, and loss of use.  The intermediate appellate court agreed with Dove, holding that, under North Carolina law, the exclusion applied narrowly only to the damages for the repair and replacement of the grain elevator.

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