Washington “occurrence,” “get to” costs, and exclusions k. (“your work”), m. (“impaired property”), and n. (“sistership”)

In Indian Harbor Ins. Co. v. Transform LLC, No. C09-1120 RSM (W.D. Wash. Sept. 8, 2010), claimant AHM hired insured Transform to construct modular condominium units using materials supplied by AHM.  After the units were installed in the condominium structure constructed by AHM, numerous defects in the units were discovered.  In repairing the defective units, AHM had to tear out and replace some of its own work.  AHM filed suit against Transform seeking damages for the repair and replacement of the defective modules, damage to the materials AHM supplied to Transform, rip and tear damages to AHM’s own work, and delay in completing the project.  Transform’s CGL insurer, Indian Harbor, defended Transform against the AHM lawsuit under a reservation of rights and filed a separate lawsuit seeking a judicial declaration of no duty to defend or indemnify.  The federal district trial court, applying Washington law, held that the AHM complaint gave rise to a duty to defend under the Indian Harbor policy.   In so holding, the court first determined that, even though alleged as a breach of contract, because Transform’s workmanship was not alleged to have been intentionally defective, it constituted an “occurrence,” and that AHM’s rip and tear damages constitute “property damage” caused by an “occurrence.”  The court next determined that the modular units, constructed from the materials supplied by AHM, constituted as “your product” of Transform, exclusion k. for “Damage to Your Product” applied to all damages to the units, but not to the rip and tear (“get to”) damages to AHM’s work.    The court states that, because the units are only components of a larger structure, they do not constitute real property which is excepted from exclusion k.   The court next determined that exclusion m. for “Damage to Impaired Property or Property Not Physically Injured” did not apply to AHM’s rip and tear damages because the rip and tear work in fact resulted in physical injury.  The court did not address the “impaired property” component of the exclusion which is not limited to property which is not physically injured.    The court finally determined that, because the AMH complaint did not allege that the condominiums were “recalled from the market,” exclusion n. for “Recall of Products, Work or Impaired Property” did not eliminate a duty to defend.  The court did not address whether the condominiums were “withdrawn from the market.”