Property Damage Claim Based on Loss of Use

Our insured is a plumber who is certified to install and annually inspect a backflow prevention device; this is a device to protect a water system from contamination by outside sources or substances. If the water in a customer's business premises does become contaminated due to the failure of the backflow preventer, and the business has to shut down because the water is not useable, would this be covered as a property damage liability claim against our insured? We are not sure if water is considered property.

Ohio Subscriber

Water is considered property, and since the water was in the system of the business premises, the water is property of the claimant. And, since this property is tangible and was damaged due to the insured's work, there was property damage in this instance. Also, consider whether the shut down of the business is considered property damage under the terms of the CGL form. The definition of property damage does include the loss of use of tangible property that is not physically injured. This means that if the claimant lost the use of its business building or premises, claims based on that loss of use are also covered by the CGL form.

So, property damage claims based on the damage to the water and loss of use of the business premises would be covered by the CGL form. Of course, the cost to repair or replace the backflow prevention device itself would not be covered due to the business risk exclusions in the CGL form.

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