Impaired Property Exclusion and Mismatched Flooring

Our insured improperly installed a dishwasher and caused the supply line to leak a week after. The leak and damage was confined to a hardwood floor around the dishwasher. However we are unable to find a match and the claimant wants the entire floor throughout the house replaced.

This is a standard ISO CGL coverage form. Does exclusion M, "Damage To Impaired Property or Property Not Physically Injured" be a factor in excluding the other parts of the floor that is not damaged? In other words, should we pay for the entire floor since we can't find a match?

Maryland Subscriber

The impaired property exclusion is not applicable in this instance since the definition of impaired property is not met. That definition requires that tangible property cannot be used or is less useful because the insured's defective work or product is incorporated into that tangible property. Just because a floor is not color matched does not mean that floor cannot be used or is less useful. It may not look nice, but it certainly can be used for its purpose, that is, to walk on it. Besides, the entire floor did not incorporate the insured's work; he did not even work on that part of the floor.

We do not see any exclusion applicable to the floor but the bigger issue is: was there property damage as defined? There certainly was no physical injury to the floor and there was no loss of use, so we fail to see any PD as defined. Since there is no PD as defined in the policy, the insuring agreement is not fulfilled and there is no need to apply any exclusion. The policy is not going to pay for replacing the entire floor throughout the house.