Kentucky Subscriber

A

There have been several court decisions dealing with this type of claim and an insurer's declination of coverage. In these cases, the main concern of the courts was with the duty to defend and not whether the insurance policy provided coverage for such a claim, although by reading the decisions, one can discern that the courts felt there was coverage for property damage.

As an example, in Isle of Palm Pest Control v. Monticello Insurance Company, 459 S.E.2d 318 (1994), a South Carolina court of appeals looked at a declaratory judgment action whereby the insured sought to require the insurer to provide liability coverage and defense costs in connection with a lawsuit over negligence in connection with a termite inspection. The court, citing several precedents, found that there was a definite duty to defend and, in so doing, declared that “the policy issued by Monticello does provide coverage”, and “we find that the allegations of the complaint of property damage caused by the negligence of Isle of Palms involve claims covered under the policy”.

In Scottsdale Insurance Company v. Ratliff dba Statewide Pest Control, 927 S.W.2d 531 (1996), a Missouri court of appeals (also citing several precedents) found that there was a duty to defend. In its opinion, the court stated “the damage claims are of a kind that both the insurer and the insured might readily anticipate from the nature of the business”; also, “if insurance companies do not intend to cover such claims when insuring termite exterminators, they might consider using language directed to the particular hazards”.

In your case, the insurer should not be in such a hurry to decline this claim. The majority of court decisions in this area mandate insurance defense at the very least. As for insurance coverage for the claim, we believe there can be coverage under the CGL form for this type of loss.

The CGL form pays those sums that the insured becomes legally obligated to pay as damages because of property damage caused by an occurrence. We cannot speak to the insured's legal liability, but there was an occurrence, there was property damage, and there is no exclusion that applies to such damage. There was an occurrence in that, presumably, the insured accidentally erred in his inspection. There was property damage in that there was physical damage to the structure. And finally, the only exclusions on the CGL form that might apply are exclusions l. and m., damage to your work and damage to impaired property, respectively. Exclusion l. is not applicable because the property damage was done to the home and not to the insured's work. Exclusion m. is not applicable because the damaged property does not completely fit the definition of impaired property. The definition of impaired property requires that the damaged property be capable of being restored to use by the named insured's fulfilling the terms of the contract; the contract was to inspect for termites and even if the insured were to reinspect the house, that would not get rid of the termites or repair the damage done by them.