North Carolina exclusion j(6) “that particular part”

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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