Restoration Insurance: Damage to Impaired Property
From time to time, we like to review the exclusions in the general liability policy. Understanding these exclusions and hot to properly cover them on other insurance policies can help avoid potential litigation can claims headaches.
Damage to Impaired Property or Property Not Physically Injured
This exclusion applies to property damage to property that has not suffered actual physical injury or to property that is considered impaired property. Impaired property is a defined term, and generally means the property of another that cannot be used (or its use is limited) because of a problem with the named insured’s product or work that was made a part of the impaired property or if the named insured did not complete the job on time.
Remember, the definition of “property damage” includes the loss of use of tangible property that has notbeen physically injured. Taking into account this portion of the “property damage” definition helps to explain the purpose of this exclusion—to restrict coverage for specific types of loss of useclaims that may result even if no physical injury to the property of another has taken place.
The specific types of loss of use claims excluded are either those caused by incorporating the named insured’s defective product or faulty work into the property of another or those loss of use claims caused by the named insured failure to finish a job on time.
This exclusion does not apply if the loss of use is caused by sudden and accidental physical injury to the named insured’s property or work, and then only if the physical injury takes place after the product or work has been put to its intended use.
Example: A heating, ventilation, and air-conditioning (HVAC) contractor is hired by a hotel to replace the cooling system before July 1. After installation, it is found that new cooling system is defective as it does not properly cool the hotel. The hotel is forced to cancel a large convention scheduled for July 4, resulting in a substantial loss of revenue to the hotel. The hotel brings a claim against the HVAC contractor alleging the hotel cannot be used (loss of use) due to the defective cooling system installed by the HVAC contractor (the named insured’s work). The HVAC contractor is not covered by its CGL for the loss of use claim by the hotel (the hotel is impaired property and was not physically injured) as the loss of use was caused by the defective work incorporated into the hotel by the HVAC contractor.