In this appeal judgment, the court considered what constituted “property damage” under the insurer’s Commercial General Liability insurance policy.
Property damage was defined in two ways:
“a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it;
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.”
“Physically injured” was not defined”.
On the case law considered physical injury to tangible property “requires tangible, manifest harm and does not result merely upon the installation of a defective component and a product or system”. Faulty workmanship that merely diminishes the value of the property without causing physical injury or loss of use does not involve “property damage”.
On the facts, the dispute was whether the problem arising was defective assembly or whether the insured caused tangible, manifest harm, to the grain silos which it constructed. The insured argued that the evidence demonstrated that the damage to the silos was from wind and weather that caused the silo’s metal parts to degrade, bend and fatigue. While there was faulty workmanship, that exposed the silos metal parts to harm, costs were incurred for repairing and construction because the wind and weather damaged the parts to such an extent they became unusable.
An arbitration award against the insured had previously found that the silos “were defectively constructed and could not be placed in service either as constructed or as repaired…” The appeal court said that the fact that the arbitration found that the silo bins were defective “as originally constructed” did not mean that it found that the damages were exclusive of physical injury to the silo’s parts caused by the wind and weather.
The silos required deconstruction, repair and proper re-erection. The evidence was that the damage to the silos was not just potential (because of the defective construction) but it actually occurred due to the force of the wind and the weather causing bending, fatigue and deterioration to the point where the silos were not structurally sound.
The court found that constituted “a harmful change in appearance, shape, composition, or some or other physical dimension to the claimants’ property”. The court said that the situation was analogous to the faulty construction of a home’s foundation which causes the home’s sheet rock and stone veneer to crack constituting “physical injury” to “tangible property”.
The court was satisfied that on the evidence that damage to the silos occurred at least partially during the policy period. It was irrelevant that damage to the metal parts was first observed after the policy period expired. It was not required that the property damage became evident or discoverable during the policy terms.