Opinion ID: 203772
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion (m)

Text: We begin our analysis with the broad observation that exclusion (m) is one of several business risk exclusions in a Commercial General Liability policy. These business risks are those: which management can and should control or reduce to manageable proportions; risk which management cannot effectively avoid because of the nature of the business operations; and risks which relate to the repair or replacement of faulty work or products. These risks are a normal, foreseeable and expected incident of doing business and should be reflected in the price of the product or service rather than as a cost of insurance to be shared by others. Sterilite Corp., 458 N.E.2d at 343 n. 13 (citation and internal quotation marks omitted). Thus, a distinction is drawn between faulty workmanship claims involving only the insured's own work product, for which a defense need not be provided, and claims for damage to the property of a third party, for which a defense is required. Frankel v. J. Watson, Inc., 21 Mass.App.Ct. 43, 484 N.E.2d 104, 106 (1985). Exclusion (m) bars coverage for property damage to impaired property, which the exclusion internally defines as property that has not been physically injured. (emphasis added). [5] Further, for the exclusion to apply the alleged damage must arise out of a defect, deficiency, inadequacy, or dangerous condition in the insured's product or work. The first reason why the exclusion does not apply is plain. Suffolk's complaint alleged that odor permeated the building. As we have concluded, this allegation is reasonably susceptible to an interpretation that the odor physically injured the property. The policies' more detailed definition of impaired property provides the second reason for concluding that the exclusion is inapplicable. The policies define impaired property as tangible property, other than the insured's product or work, that cannot be used or is less useful because it incorporates part of the insured's product or work that is known or thought to be defective, deficient, inadequate, or dangerous. This definition is, however, somewhat narrowed by a condition that property is impaired property only if such property can be restored to use by (i) the repair, replacement, adjustment, or removal of the insured's product or work, or (ii) the insured's fulfilling the terms of its contract or agreement. Although the complaint alleges property damage (odor) to tangible property (the building) that cannot be used or is less useful because it incorporates the insured's defective, deficient, inadequate, or dangerous product (the carpet), we also must consider the definition's internal limiting condition. Property can only be impaired property if it can be restored to use by the repair, replacement, adjustment or removal of [the insured's] product or [] work. If it cannot be so restored, then it is not impaired property. Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., Inc., 49 Mass.App.Ct. 651, 731 N.E.2d 569, 572 (2000) (Other cases implicating this exclusion have turned on the fact that the exclusion applies only if the damaged property can be restored to use by the `repair, replacement, adjustment or removal' of the insured's work.) (citation omitted). A fair reading of Suffolk's complaint suggests the property could not be restored to use simply by repairing, replacing, adjusting, or removing BloomSouth's product or work. The allegations thus fall outside the definition of impaired property. Suffolk's complaint states in relevant part, as a result of the defendant's negligent and defective work and materials, and in order to eliminate the alleged odor ... Suffolk expended monies in attempting to remediate the alleged odor ... including... the installation of carbon air filters to the ventilation system in the building.  (emphasis added). [6] Admittedly, there is no express indication in the complaint that the installation of the air filters actually restored the property to use. On the other hand, neither is there any indication that repairing, replacing, adjusting, or removing the defective product (the carpet) restored the property to use. The closest the complaint comes to using such language is in the allegation that reads, Suffolk was ultimately required to pay BFDS for removal of the existing carpet ... and adhesives, bead-blasting of the concrete floor and replacement of the carpet [] and related materials. But even this language indicates that bead-blasting, a remedial effort that may be distinct from removal and replacement of the carpet, was necessary to restore the property to use. A legitimate reading of the complaint is that Suffolk attempted to remediate the alleged injury (odor) by installing carbon air filters and bead-blasting the concrete floor. Whether it was these actions, the removal and replacement of the offending carpet, or some combination that restored the building to use is unclear. What is clear is that Essex had the burden of proving the applicability of exclusion (m). See Highlands Ins. Co., 676 N.E.2d at 804. Such a hurdle simply cannot be cleared given the wording of Suffolk's complaint. [7] We express no opinion on the issue of whether the alleged odor damage here will ultimately require indemnification. A Massachusetts court may conclude that odor in general, or this odor in particular, does not constitute physical injury to the property. Moreover, exclusion (m) may serve to deny indemnification if, for example, a fact-finder determines that removing or replacing the carpet alone would have sufficed to restore the property to use.