What Does That Particular Part Mean?

What Does That Particular Part Mean?

Vague CGL exclusion wording leaves buyers guessing about extent of coverage

The wording of exclusions in a commercial general liability insurance policy can be confusing. Sometimes the words are defined in the policy, but often, words and phrases that make up the exclusions are left undefined, and thus open to differing interpretations. Such a phrase is “that particular part.”

This phrase is found in exclusion j. (damage to property) in the current CGL form. The form excludes coverage for property damage to “that particular part of real property” on which the named insured is performing operations, and excludes coverage for property damage to “that particular part of any property” that must be restored, repaired or replaced because the named insured's work was incorrectly performed on it.

One of the problems arising out of these exclusions is trying to determine the extent of “that particular part.”

For example, if the insured is repairing an electrical panel board in one room and somehow causes the board and electrical outlets throughout the whole building to blow up, what is “that particular part” on which the insured was working?

In other words, does the exclusion apply only to property damage done to the panel board, or does it apply to the whole electrical system?

Another example: the insured is hired to blast a hole in one section of a huge rock mass to make a space for building purposes. He mistakenly uses too much dynamite and the whole rock mass is destroyed. Was “that particular part” on which the insured working just that area he had contracted to blast, or did it include the entire rock formation?

At first reading, it would seem that only that damage to the area where the insured is working should be excluded. After all, that particular part seems to explicitly limit the scope of the exclusion to that specific, individual part on which the insured is working.

Those words could have been deleted from the exclusions, but they are there, and to what purpose but to limit the extent of the exclusion?

The words seem to be in keeping with the accepted fact that exclusions are supposed to be interpreted narrowly (and in favor of the insured if any reasonable ambiguity exists). However, as the following judicial decisions show, first impressions are not always endorsed.

In Southwest Tank and Treater Manufacturing Company vs. Mid-Continent Casualty Company, the insured was hired to make modifications to a large steel storage tank. The insured was to install heating elements, and decided to cut three holes in the tank one at a time, take out the plate, install the heating element, and then weld the plate back onto the tank.

While the insured was cutting the second opening, a fire broke out and the tank exploded, resulting in a complete loss of the tank. The insured filed a declaratory judgment action seeking a declaration that its insurer owed a duty to defend and indemnify the insured for the property damage claim.

The district court noted that the tank was a self-contained collective unit which constituted a single item of property, and that the insured had been hired to work on the tank as a whole. The court also found that the majority of other jurisdictions that have interpreted the phrase have held that “that particular part” includes the entire piece of property on which the insured was working at the time of the accident.

Based on this, the court decided that it could not limit the exclusion to the precise and isolated spot upon which the work was being done. The insured was hired to install heating tubes in the tank, and this included the entire tank. The entire tank was “that particular part” of property, and the exclusion applied to the claim.

In another case American Equity Insurance Company vs. Van Ginhoven and Jayne J. Fernandez?the insured was hired to make spot repairs on and clean a swimming pool. To make the spot repairs, the insured had to drain the pool, and as this was being done, the water table pressure caused the pool to pop out of the ground. This resulted in damage to the pool, pump, heating system, deck, screen enclosure, surrounding landscape and the sprinkler system.

The insurer admitted coverage for all this damage except for damage to the pool itself. The insurer then brought a declaratory judgment action asserting that damage to the pool was excluded from coverage. The trial court found coverage, saying the exclusion was ambiguous; the insurer appealed.

In the appeals process, the insured argued that “that particular part” would only apply to damage to property that the insured contracted to work on namely, the specified spot repairs, but not the entire pool. The appeals court said this argument was untenable. At the time the damage occurred, the insured was not working or performing operations on the spots subject to repair; he was draining the entire pool. Therefore, the exclusion clearly and unambiguously applied to the pool itself.

Perhaps “that particular part” is unambiguous to many courts. However, at the very least, it has to be said that the phrase, and thus the property damage exclusions, still can cause confusion and coverage disputes.

David D. Thamann is managing editor of the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. The FC&S editors welcome comment and questions and may be reached by fax at 859-692-2293 or via e-mail at FCS@NUCO.COM.

Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.