A conveyor company failed in its claim against its insurers for a loss arising from the supply of a defective cookie packaging machine to a biscuit manufacturer because the policy specifically excluded coverage for “impaired property”.  The claim by the biscuit manufacturer against the insured alleged that they were unable to use their new building because it contained the defective cookie packing system as a result of the insured’s failure to fulfil its contractual obligation to install a working system.

The policy excluded “property damage” to “impaired property” arising out of defective work.  Impaired property was defined as tangible property “that cannot be used or is less useful because it incorporates the insured’s product or the insured’s work”.  The claim by the biscuit manufacturer feel precisely within the terms of the exclusion namely that their new building (built especially to house the machine) could not be used or was less useful because of the defective work.

[Hallmark Specialty Insurance Co v Kamflex Conveyor Corp No 3:20-cv-05563-VC US District Ct Northern District of California]