 The CGL covers risk to “your property” which the policy defines broadly. To prevent the application of this definition to the insured’s actual work (either physical or intellectual), the policy specifically excludes “Damage to Your Work.”[1] In this post, I’ll cover sections (a)(1) and (2) of the exclusion.
Here is the language covered in this post: Your work, means
Let’s begin with sentence 1. “Or” is a coordinating conjunction, which connects words of equal rank. “Work” is an, “activity involving mental or physical effort done in order to achieve a result.”[2] [3] “Operations” are “a process or series of acts performed to effect a certain purpose or result.”[4] This word implies a specific process. For example, workmen must remove an old air conditioner before installing a new one. These two nouns cover the gamut of production methods for an economic output. “Performed” is the past tense of the transitive verb “perform,” which means to, “carry out, accomplish, or fulfill.”[5] Two prepositional phrases are verbal objects. The first phrase begins with “by,” which means, “through the agency or act of.”[6] “You” refers to the insured.[7] This phrase applies when the insured performs the activity. The second prepositional phrase begins with “on,” which means, “the agent or agency of a specified action”[8] while “behalf” means, “as the agent of.”[9] This phrase means a third party acts as an agent of the insured. We can rewrite the first sentence as, “the insured or his agent performs the work or operation.” The second sentence contains a list of three items (“Materials, parts, or equipment”), which references the contractual interpretive maxim of, “expressio unius exclusio alterius: “If one or more specific items are listed without any more general or inclusive terms, other items although similar in kind are excluded.”[10] This is the exclusive list of items an insured can “furnish.” “Materials” are the “tools or apparatus for the performance of a given task.”[11] “Parts” are, “a component that can be separated from a system,”[12] while “equipment” is, “the item needed for a particular purpose.”[13] The insured “furnishes” these items, which means they are provided “to equip with what is needed.”[14] The definition casts a wide net to incorporate all physical items the insured incorporates into the final product. Returning to the air conditioning example above, this definition would cover all the individual parts used as part of the assembly from the smallest screw to the outside condenser and attack unit. To conclude, “your work” means all the physical or mental labor performed and includes all the items included as part of the work. [1] 2(k) of the CGL [2] Concise Oxford English Dictionary, 11th Edition, © 2004, p. 1661 [3] The definition also covers intellectual activity (it includes “mental … effort”), preventing a knowledge-based service provider (such as an accountant, lawyer, doctor or engineer) from attempting to argue a CGL applies to his professional activity. [4] The American Heritage Dictionary, Second College Edition, © 1985, p. 871 [5] Oxford at p. 1064 [6] American Heritage at 222 [7] From the opening paragraphs of the policy. [8] American Heritage at 867 [9] American Heritage at 168 [10] Kastely, Post, and Hom, Contracting Law, second Edition, © 2000 Carolina Academic Press, p. 724 [11] American Heritage at 772 [12] Id at 905 [13] Oxford at 402 [14] American Heritage at 540
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 Because the CGL is designed to be the workhorse business policy, its language has to be open to liberal interpretation – a drafting concession that potentially exposes the insurer to unintended coverages. For example, the policy provides indemnification for “property damage.” A skilled lawyer could potentially apply this definition to the insured’s product, exposing the insurer to product liability coverage. This explains why this coverage is specifically excluded. The complete "'your product" exclusion is contained in several sections. For the sake of clarity, I've assembled them into one sentence, which follows. The exclusion’s complete text is emboldened; bracketed, italicized comments provide context: [Beginning of Section 2 titled “Exclusions] This insurance does not apply to [title of section (k)] Damage to Your Product [which is] “property damage to your product arising out of it or any part of it.” The CGLs’ complete definition of “your[1] product,” is, “any goods[2] or products,[3] other than real property, manufactured, sold, handled, distributed, or disposed of by, you, others trading under your name, or, a person or organization whose business or assets you have acquired.”[4] The definition has five verbs (“manufactured, sold, handled, distributed, or disposed”) that link to the insured to the product so as to create an insurable interest. Manufacture means, “to make or process into a finished good.”[5] Clearly, this verb applies to a company that converts inputs into a sellable output. “Sold” is the past tense of “sell” which means “to exchange or deliver for money.”[6] This verb applies to retailers. Handle means “to deal with”[7] while “distribute” means “To supply goods to retailers.”[8] Both these verbs apply to middle-men – companies that are part of the supply chain, but only hold the item for a limited amount of time. “Dispose” means “to get rid of.”[9] Now that we’ve defined “your product”, let’s return to the definition: [Beginning of Section 2 titled “Exclusions] This insurance does not apply to [title of section (k)] Damage to Your Product [which is] “property damage to your product arising out of it or any part of it.” The combination of the §2’s opening phrase (“this insurance does not apply to”), and section k’s title, (“Damage to Your Product”) is clear and concise. Here is the text (emboldened) without the parenthetical references: This insurance does not apply to damage to your product. Unfortunately, that’s where the clarity ends thanks to the next two phrases, “arising out of it” and “or any part of it.” The first phrase is supposed to apply to a situation where the insured’s item is a component of a larger product and then causes damage to the larger whole. For example, a cell phone battery overheats, damaging the rest of the phone. The verb “arise” is problematic. While one of its meanings is, “to result”[10] – clearly the drafter’s intention -- it’s more common use is “to get up”[11] or “to move upward,”[12] as in, “Arise, my son” – which is often used in a Biblical context. Why the drafters didn’t use a more accurate verb – such as “causes” or “results from” – is a mystery. The second prepositional phrase, “or any part of it,” is also troublesome. It’s meant to apply when part of the insured’s “product” causes the damage previously mentioned. Again, the word choice is awkward. A single, 14-word sentence should be clear and unambiguous. This one is anything but. We ultimately know what the drafters are trying to define. The wording really needs work. [1] The very beginning of the policy observes that “you” and “your” refer to the insured. Please see discussion here. [2] The American Heritage Dictionary, 2nd College Edition, © 1985, p. 568 (a good is a “commodity or ware”). [3] The Concise Oxford English Dictionary, © 2004, p. 1145 (“an article or substance manufactured or refined for sale”). Once again, the term being defined is included in the definition. [4] CGL Section V, §21 [5] Id at 764 (however, most dictionaries also state the word implies large-scale production, which could potentially lead to a challenge for non-mass-produced goods). [6] Id at 1114 [7] Id at 592; see also Oxford at 647 (“to control or manage commercially”) [8] American Heritage at 410 [9] Oxford at 414 [10] p. 127 [11] Id [12] Id  The CGL is the “workhorse” United States policy, providing the vast majority of business insurance coverage in the U.S. But the policy’s definitions contains a potential pitfall: because the policy indemnifies the insured for “property damage” and “bodily injury” arising from “general” liability, a skilled attorney could successfully argue the policy applies to risks not intended by the policy drafters. The standard policy contains a number of standard exclusions to prevent this outcome. Because a CGL’s covers “bodily injury” it could potentially cover worker’s compensation claims. To prevent this outcome, the policy specifically excludes not only worker’s comp claims (Section 2(d) excludes claims for “worker’s compensation and similar laws”) but also “bodily injury related to an “employer’s liability.” (Section (2)(e)). The latter provision is probably overkill, but certainly doesn’t hurt. The CGL’s coverage of “property damage” and “bodily injury” could potentially open the door to liability for damages caused by pollution (in fact, careless drafting in the late 1960s and early 1970s allowed insureds to successfully file such claims, leading to huge losses for insurers). Exclusion (2)(f) specifically precludes that possibility by excluding claims for property damage or bodily injury caused by pollution (some policies go so far as to have a rider called the “Total Pollution Exclusion). The CGL’s coverage of “property damage” and “bodily injury” could lead to coverage caused by an auto accident. Exclusion 2(g) – for damage arising out of “the ownership, maintenance, use, or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured” – prevents this possibility. Finally, the CGLs’ coverage of property damage could potentially force the CGL insurer to cover losses to physical property such as buildings and houses. Exclusion (2)(j), which excludes “property damage to property you won, rent, or occupy” prevents this outcome. Ultimately, the insured should create an “insurance tapestry,” which would look like this:  Ideally, each insurance box only covers claims unique to the specifically named coverage.
Each policy applies to a specific risk. The language of each policy also specifically excludes its application to the other fact patterns (pollution excludes worker’s comp etc…). Weaved together, the policies protect the insured against specific catastrophic risks. |
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