The following issue has come up in our office. Company A sells seasonings to Company B to be used in Company B's food product. It is determined that the seasonings are defective, making the finished product of Company B unusable. In addition to a claim for the damage to the finished product, Company B is submitting a claim for loss of sales and profits. The insuring agreement on the CGL form states that the insurer will pay for those sums that the insured becomes legally obligated to pay as damages because of BI or PD. Would the lost profit and loss of sales be considered property damage and thus covered by the CGL form?

Illinois Subscriber

There may be a tendency to deny coverage for lost profits and loss of sales since the CGL insuring agreement applies to property damage, and property damage is defined a physical injury to or loss of use of tangible property. Profits and sales are not really tangible property. However, the insuring agreement has to be looked at in its entirety.