Three claims disputes came to my attention recently that caused me to wonder about real property versus personal property. One claim involved underground cable; one involved street signs; and the last one involved windows.
In the first claim, the insured was hired to install modern underground cables. The job was completed, but when the insured went to pull out the old, outdated cable, the new one was struck and damaged. So, this begs the question: Is the new cable the named insured’s product, which would then be subject to the “damage to your product” exclusion in the general liability policy?
There is no doubt that the cable was sold and handled by the insured and that fits the definition of “your product” in the liability policy. But, “your product” does not include real property. The legal definition of real property is “land, and generally whatever is erected or growing upon or affixed to land.”
An underground cable is not land and is not erected or growing upon land, but is it affixed to the land? It can be argued that an underground cable is meant to be in the ground permanently, something not transitory and not readily moveable. In other words, affixed to the ground, or real property. Is there enough reasonable ambiguity here to prevent the insurer from using the “your product” exclusion?
The second claim revolved around the insured manufacturing, selling, and installing street signs for a municipality. The signs proved to be defective and, after a while, they began to warp and discolor. The purchaser demanded the insured take down the signs and replace them, and the insured sought coverage under its general liability policy. The insurer declined to cover the claim and said the signs were the product of the insured and the “damage to your product” exclusion prevented coverage.
As with the underground cable, the signs were the product of the insured, but they were definitely affixed to the land (in fact, the signs were imbedded in holes filled with concrete). So, by definition, the signs became real property and should not be considered the product of the insured. Moreover, note that insurers themselves consider signs to be fixtures under property policies and included as covered property under buildings, which are real property.
The third claim was for damage to windows that had been installed in a building. The insured sold the windows and installed them. After installation, it was discovered that the windows were scratched and ill-fitting, which allowed rain to penetrate the building.
The insured wanted its insurer to pay for the dismantling and replacement of the windows, and the insurer declined based on the “your product” exclusion. The insured argued that while the windows were its product at first, once installed in the building, the windows then became part of the building—that is, they became real property. This meant that the product exclusion was not applicable.
Now, there certainly are other exclusions that might apply to these claim situations, but concentrating on the “damage to your product” exclusion, I would say that this exclusion definitely cannot be applied in the second and third scenarios and could reasonably be disputed in the first scenario.
I base this on my interpretation of real property versus personal property. The signs and the windows, being respectively affixed to land and the building, meet the definition of real property, and “your product” does not include real property. As for the underground cable, I think there is enough ambiguity in the situation to allow the insured the benefit of the doubt.
What do you think?
This blog post is meant to provide insights into insurance coverage issues in general, and does not necessarily account for the differences in law and practice in different venues. As such, the opinions expressed within should not be construed as legal advice for the unique circumstances of any particular claim or suit.