Impaired Property and the CGL Form

Our insured is a plumbing and heating business. The insured has a CGL policy and had a claim recently that was denied by the insurer based on the impaired property exclusion. The claim involved a garage floor that was damaged after the pipes underneath it froze and broke. There was a defect in the control panel of the boiler that the named insured installed and this caused the boiler to shut off, resulting in loss of heat and the freezing of the pipes. Our insured did not install the garage floor; he only installed the boiler, the control panel, and the pipes. Now, we can understand the denial of coverage for the damage to the insured's work, but the insurer also denied coverage for the damage to the garage floor, saying that the floor is impaired property and property damage to impaired property is excluded. We think that there should be coverage for the garage floor damage. What do you think?

Michigan Subscriber

Impaired property is defined as tangible property other than the named insured's work or product that cannot be used because it incorporates the named insured's work or product that is known to be defective, if such property can be restored to use by the repair or replacement or removal of the named insured's work or product. This definition has to be met in order for the impaired property exclusion to apply to a claim.

Based on your information, the item that was defective was the control panel of the boiler and that caused the freezing and the damage. Unless that control panel was incorporated into the garage floor, the definition of impaired property has not been met in this instance, and the exclusion does not apply. It seems that what was incorporated into the garage floor were the pipes that froze. And while the pipes were the product and work of the insured, they were not defective or deficient. The control panel was defective. If the pipes had been defective and caused the damage to the floor, then the impaired property definition and exclusion would apply. But that was not the case. The control panel was not incorporated into the floor; it was part of the boiler.

The defective control panel was the cause of the loss and it was the insured's work or product. This is a case of the product or the work of the named insured causing damage to another's property and that is covered by the CGL form.

 

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