Global Modular, Inc. v. Kadena Pacific, Inc.

A subcontractor’s commercial general liability insurance policy did not exclude coverage of water damage to the interiors of modular units it supplied since the damage was not the specific part of the units on which the subcontractor was then working nor the part on which the subcontractor incorrectly performed its work.  A CGL policy’s exclusion (j)(5) denies coverage for damage to “[t]hat particular part of real property on which you or [your subcontractors] are performing operations, if the ‘property damage’ arises out of those operations.”  This decision holds that “particular part” refers to specific components of a structure, not the whole structure and that “are performing operations” indicates the exclusion applies only to damage caused during physical construction activities.  So water damage to modular units’ interiors was covered even though the insured’s work on the entire project was not yet complete, as it was not physically working on the interiors at the time the damage occurred.  Exclusion j(6) applies to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”  Again, the decision construes the exclusion narrowly to exclude damage only to the portion of the project on which the insured incorrectly performed its work.  Here, the insured arguably supplied inadequate waterproofing on the roofs of the units, but the damage was to the interiors which were adequately constructed.  Hence, the exclusion did not apply.  The policy also covered the general contractor’s delay damages suffered while it repaired the interiors of the damaged units.  While repair costs are not themselves property damage, they were damages because of property damage to which the CGL applied, and thus were covered under the policy’s insuring clause.

California Court of Appeal, Fourth District, Division 2 (Slough, J.); September 8, 2017; 2017 WL 3948229

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