If ever in need of a concise, well-reasoned opinion on "occurrence," "property damage" and applicability of the business risk exclusions, turn to Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Construction, Inc., 2012 Wis Ct. App. LEXIS 698 (Wis. Ct. App. Sept. 5, 2012).
A contractor was hired to install concrete during construction of seven gas stations. Red-D-Mix provided the concrete. The contractor and Red-D-Mix were eventually sued by the gas stations, based upon allegations that the concrete was defectively manufactured and installed. The gas stations alleged that Red-D-Mix supplied concrete that was defective and resulted in damages, including the need to repair nearby asphalt.
Red-D-Mix tendered to its insurers, who denied coverage. Suit was filed and the insurers moved for summary judgment. The trial court determined there were no allegations of either "property damage" or an "occurrence." Therefore, there was no duty to defend or indemnify Red-D-Mix.
The Court of Appeals first noted that the underlying complaint alleged property damage by stating the concrete was "defective and has resulted in damages, including pitting and deterioration of the concrete." The complaint also alleged Red-D-Mix's breach would cause Plaintiffs' damage, including "concrete and asphalt repair."
Next, the court found an "occurrence" was alleged. The court agreed with the insurers that faulty workmanship that only damaged the insured's own work or product was not an occurrence. (Here, I would take issue with the opinion. It seems to me that damage to Red-D-Mix's concrete would constitute an "occurrence," but exclusions for faulty workmanship to the insured's own work or product would bar coverage). Damage to the asphalt, however, qualified as an occurrence. Even though the defective concrete was faulty workmanship, that faulty workmanship allegedly caused damage to other property, i.e., the asphalt.
The court then turned to the exclusions. Exclusion j (5) barred coverage for property damage to "that particular part of real property [the insured is working on] if the 'property damage' arises out of those operations." The underlying complaint, however, did not allege that Red-D-Mix performed operations at any of the gas station sites. Further, assuming Red-D-Mix performed operations at the site, there was no indication that those operations damaged "that particular part" of the property on which Red-D-Mix was working. Instead, the defect in the concrete caused damage to both the concrete itself and to the adjacent asphalt.
Exclusion k barred coverage for "'Property damage' to 'your product' arising out of it or any party of it." Exclusion l provided there was no coverage for "'Property damage" to 'your work' arising out of it or any part of it." Admittedly, these exclusions prevented coverage for any damage to Red-D-Mix's concrete caused by the concrete itself. But damage to the asphalt did not fall within the exclusions.
The court next considered Exclusion m, which excluded coverage for property damage to "impaired property." The policy defined "impaired property" as that which was capable of being restored to use by "the repair, replacement, adjustment or removal" of the insured's work or product. If property could not be restored to use, it was not impaired property. If the asphalt was damaged, it could not be restored to use by the repair, replacement, adjustment or removal of the concrete. Instead, the asphalt itself had to be removed and replaced.
Finally, Exclusion n stated there was no coverage for "your product" or "your work" when such product, work or property was withdrawn or recalled from the market or from use. There was no evidence Red-D-Mix's product had been withdrawn or recalled from the market or from use.
Unfortunately, this opinion is unpublished. The careful, deliberate reasoning offered here differs substantially from that of the Hawaii Intermediate Court of Appeals, which, in an abbreviated decision, found no coverage for construction defects in Group Builders v. Admiral Ins. Co., 123 Haw. 142, 213 P. 3d 67 (Haw. Ct. App. 2010).