Two recent Eighth Circuit cases illustrate the importance of CGL policy language in determining whether a claim is potentially covered loss or an uncovered business risk. In Electrical Power Sys. Int’l, Inc. v. Zurich Am. Ins. Co., — F.3d —-, 2018 WL 559789 (8th Cir. Jan. 26, 2018) (Missouri law), the claimant, a utility company, hired the insured, EPS, to dissemble, transport, and re-assemble a 403,000 pound transformer. EPS’s work required it to disconnect a bushing from the transformer. The bushing is a conduit for electrical current flows, and was bolted to a lead cable that was attached to the transformer’s coil and internal core. According to the claimant, EPS failed to remove one of the bolts and when it tried to remove the bushing, it pulled on (and damaged) the core and coil. The court held an exclusion for “property damage” to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it” applied. EPS contended the Missouri courts apply the exclusion with “great specificity.” EPS argued that the bushing was the “particular part” of property on which it was working, not the coil and core. The court disagreed, concluding EPS’s work included disconnecting the bushing from the coil and core, which, therefore, qualified as “the particular part” of property on which it was working.
In Decker Plastics Corp. v. West Bend Mut. Ins. Co., — F.3d —-, 2018 WL 575953 (8th Cir. Jan. 29, 2018) (Iowa law), the Eighth Circuit revisited a dispute arising out of plastic bags manufactured by the insured. A customer sued the insured, Decker, alleging that the bags deteriorated in sunlight. As a result, the customer’s landscaping materials were allegedly contaminated with plastic and became unsaleable. In 2016, the Eighth Circuit held that the failure of the bags may constitute an “occurrence” to the extent there was “property damage” to property other than the insured’s work product and remanded for a determination on this issue. Decker Plastics Inc. v. West Bend Mut. Ins. Co., 833 F.3d 986 (8th Cir. 2016). Revising the issue, the Eighth Circuit held there was no “property damage.” The court reasoned that the landscaping materials were not “physically injured due to the incorporation of the deteriorated packaging materials.” Rather, the claim was limited to diminution in value, and did not include “property damage.”
Tressler recently completed a 50-State Survey that identifies some relevant law as to whether faulty workmanship involves an “occurrence” or “property damage.” Decker Plastics is generally consistent with previous Iowa law regarding what constitutes “property damage” and its analysis is worth considering when evaluating a claim governed by Iowa law and arising out of construction defect or product defect.