Opinion ID: 2998583
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion m: Damage to Impaired Property

Text: In its letters denying coverage, Atlantic invoked the exclusion for damage to “impaired property,” one of the socalled “business risk” exclusions that are standard fare in contemporary CGL policies. Exclusion m states in full: This insurance does not apply to: “Property damage” to “impaired property” or property that has not been physically injured, arising out of: (1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work”; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms. This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to “your product” or “your work” after it has been put to its intended use. The term “impaired property” is defined in the policy as: [T]angible property, other than “your product” or “your work”, that cannot be used or is less useful because: a. It incorporates “your product” or “your work” that is known or thought to be defective, deficient, inadequate or dangerous; or b. You have failed to fulfill the terms of a contract or agreement; 10 No. 04-3624 if such property can be restored to use by: a. The repair, replacement, adjustment or removal of “your product” or “your work”; or b. Your fulfilling the terms of the contract or agreement. Sokol’s peanut butter paste is “your product” under the terms of the policy, and this product was incorporated into property “other than your product,” that is, Continental’s cookie mix. It is undisputed that the paste became defective, deficient, or inadequate. Sokol’s payment of Continental’s claim thus falls within the “impaired property” exclusion under the terms of the policy. Sokol argues that if Exclusion m applies to this claim, coverage is restored by an exception to the exclusion for “loss of use of other property arising out of sudden and accidental physical injury to ‘your product’ or ‘your work’ after it has been put to its intended use.” We do not agree. First, as we have noted, Continental’s claim was not one for “loss of use” of impaired property. In addition, the exception to Exclusion m applies only to “sudden and accidental” injuries to property. From the record it is not clear exactly when or how the peanut butter paste went bad. Sokol insists it was good when it left the plant in late August 2001; Continental discovered the problem in October 2001. These facts are consistent with the gradual deterioration of a food product. Whether or not the rancidity or bad taste was “accidental” (we express no opinion on that), the situation appears anything but sudden. Sokol cannot survive summary judgment merely by averring that the paste went bad suddenly and accidentally. And that is all Sokol does. The exception to the “impaired property” exclusion does not apply here. No. 04-3624 11