Georgia Court of Appeals Rules That a “Building” is not a “Product” Under CGL Insurance Policy

Stratton & Co., Inc. v. Argonaut Ins. Co.,
1996 Ga. App. LEXIS 303 (Ga. Ct. App., March 14, 1996).

Provision in the standard form of comprehensive general liability insurance policy which excludes coverage for “property damage to the named insured’s products arising out of such products or any part of such products,” did not apply because the damage the “building” constructed was not the named insured’s “product.”

Stratton & Co., Inc. (“Contractor”) completed the construction of an office building and parking deck for Goldome Credit Realty Corporation (“Owner”). After complaining about the quality of the Contractor’s work, the Owner filed a lawsuit against the Contractor. The Contractor tendered the defense of that lawsuit to its insurance company, Argonaut Ins. Co. (“Insurer”), but the Insurer denied coverage and refused to defend the Contractor. Contractor ultimately settled the lawsuit with the Owner and paid $468,464.

The Contractor then filed the present lawsuit against its Insurer alleging a breach of the insurance policy and seeking reimbursement damages and costs of defense. The Insurer moved for summary judgment on the ground that the Contractor’s loss was not covered under the insurance policy. The Insurer relied on the policy’s Exclusion (n) which states that the insurance does not apply “to property damage to the named insured’s products arising out of such products or any part of such products.” The insurance policy also defines a “named insured’s products” as “goods or products manufactured, sold, handled or distributed by the named insured.” The trial court granted the Insurer’s summary judgment holding that the office building and parking deck were the Contractor’s “product” and that coverage was therefore precluded under Exclusion (n) of the policy.

The Court of Appeals began its analysis by noting that “there is no Georgia case law specifically addressing the issue of whether a building should be considered a ‘product’ of its builder.” The court observed that the jurisdictions that have considered this issue in the context of the standard form comprehensive general liability insurance policy are split on this question. The appellate court reversed the grant of summary judgment concluding that “the better reasoned cases come from those jurisdictions that have adopted the insurance industry’s own interpretation and found that real property, like the building and parking deck here, are not “products” and thus are not excluded from coverage by Exclusion (n) of the standard form comprehensive general liability policy.” The court noted that in common parlance, buildings are not manufactured but are rather built, constructed or erected. The damages sought by the Owner in the previous lawsuit appeared to be caused by defective and incomplete site preparation; elements which are not products under the policy’s definition. Finally, the Court noted that to hold otherwise, would be to disregard the distinction between “products” and “work performed,” both of which are the subject of separate policy exclusions.

The court also rejected the Insurer’s argument that coverage is barred under the “work performed” exclusion. This exclusion provides that insurance does not apply “to property damage to work performed by the named insured arising out of such work or any portion thereof, or out of such materials, parts or equipment furnished in connection therewith.” The court agreed with the Contractor that this exclusion did not apply and that “the policy provides coverage for property damage to the building and parking deck resulting from the work performed and materials supplied by subcontractors on the project.” (emphasis added). The policy’s broad form endorsement in this case deleted the phrase “work performed by or on behalf of the named insured,” which is found in Exclusion (o). The court also noted that its construction is supported by the insurance industry’s own interpretation of the broad form endorsement.

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