Minnesota “Your Product” and “Sistership” exclusions

In Bright Wood Corp. v. Bankers Standard Ins. Co., No. C5-02-2075665 (Minn. Ct. App. July 22, 2003), insured Bright Wood manufactured wood window sash components which it sold to Sherer which then used the components to manufacture completed windows.   The contract required Bright Wood to treat the components with a preservative to prevent rot.   Sherer received complaints that the wood components of its windows were deteriorating.  Bright Wood in fact had failed to treat the components with a preservative.  Scherer began repairing and then replacing the windows.  The only damage to parts of the windows other than the Bright Wood components occurred during the repair or replacement.    Scherer sued Bright Wood for breach of contract and warranties.  Bright Wood’s CGL insurers denied coverage.  Bright Wood settled the Scherer suit and then sued its CGL insurers.  The trial court entered summary judgment for the insurers and the intermediate appellate court affirmed.  Applying Minnesota law, the appellate court first held that the “Damage to Your Product” exclusion (k.) for “’property damage’ to ‘your product’ arising out of it or any part of it” applied to the cost to repair or replace the insured’s components as well as the property damage to other property damaged during the repair or replacement of the insured’s components.  The court states that “Bright Wood has produced no evidence of damage occurring to other property except in the course of repair.”   The court next held that, for essentially the same reasons, the “Recall of Products, Work or Impaired Property” (“Sistership”) exclusion n. also precluded coverage because the windows constituted “impaired property.”

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