Insured for Product/Work not precluded by ‘Your Product/Your Work Exclusion’

Insured for Product/Work not precluded by ‘Your Product/Your Work Exclusion’

On January 11, 2022, the United States Court of Appeals for the Fifth Circuit passed its decision in the matter of Siplast, Incorporated v. Employers Mutual Casualty Company, 2022 U.S. App. LEXIS 795 (5th Cir. Jan. 11, 2022). The court held that in a construction defect case where the underlying complaint alleged damage to property beyond the product and work of the insured, an insured is duty-bound to defend its insured.

As per the facts of the case, Siplast, Inc. (Siplast) entered into a contract with the Archdiocese of New York (Archdiocese), whereby Siplast was to install a roof membrane system at a high school located in Bronx, New York. As a part of the contract, Siplast had guaranteed that the installed roof membrane would remain in a watertight condition for at least twenty years, and if it failed to remain in the stated condition, Siplast would repair the installed roof membrane system at its own expense. Several years after, the Archdiocese observed water damage in the ceiling tiles of the high school. Thereafter, it contacted Siplast, and repairs were henceforth made. However, the damage continued to occur, and Siplast refused to make further improvements to the roof. Due to the same, the Archdiocese hired a consultant, who noted significant issues relating to the workmanship and the materials used in the roof membrane system. The consultant concluded that the only way to solve the issues would be to replace the damaged membrane with a new one.

Consequently, Archdiocese filed a suit against Siplast, which took its defense to the Employers Mutual Casualty Company (EMCC) under several commercial general liability policies which Siplast had purchased from EMCC. But EMCC denied Siplast’s claim pursuant to the policy’s “Your Product/Your Work Exclusion”. Siplast then filed a declaratory judgment action, and sought declaration that it was entitled to coverage under the policies. Both the parties filed a motion for summary judgment, and the District Court passed a ruling in favor of the carrier and stated that even though the underlying complaint alleged “property damage” which was caused by an “occurrence”, the alleged damage would nevertheless fit within the policies’ “Your Product/Your Work Exclusion”.

However, the Fifth Circuit court reversed the District Court’s ruling. It relied on Wilshire Insurance Company v. RJT Construction, LLC, 581 F.3d 222 (5th Cir. 2009) and Building Specialties, Incorporated v. Liberty Mutual Fire Insurance Company, 712 F. Supp. 2d 628 (S.D. Tex. 2010), and explained that if a “complaint alleges damage to and seeks damages for any property that is not the insured’s product or directly subject to the insured’s work,” then the “claim falls outside of a ‘your product/your work’ exclusion” and the insurer has a duty to defend.” It further stated that if a complaint “solely alleges facts and damage to the insured’s own products, or solely seeks to recover the costs to repair the insured’s work, then it is covered by a ‘your product/your work’ exclusion and the duty to defend remains dormant.” The Fifth Circuit court observed that the interpretation adopted by the District Court was “overly narrow” where the facts stated in the underlying complaint “repeatedly point to damage to property other than Siplast’s roof membrane system.”

The Fifth Circuit, therefore, took recourse in the wider interpretation of the terms of the insurance policies bought by the insured, specifically for the term “Your Product/Your Work Exclusion”. It stated that if the underlying complaints bring into light the insured’s products, then the same would be covered under “Your Product/Your Work Exclusion” exclusion, and the duty to defend remains dormant.

Research and Writing By: Team Draft n Craft

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