Opinion ID: 2551829
Heading Depth: 1
Heading Rank: 6

Heading: The Loss of Work Exclusion

Text: Hayden Farms argues that the Court of Appeals erred in applying exclusion (h), the loss of use exclusion. While Hayden Farms concedes that there was a loss of use of tangible property, it argues that such loss of use did not result from a delay in or lack of performance by or on behalf of [Krause] of any contract or agreement. See CP at 280; see also Pet. for Review at 15. Hayden Farms asserts that the loss of use of the rootstock did not result in Krause's delay, but rather in delayed rootstock production. Pet. for Review at 15 (failing to cite supporting authority). We find Hayden Farms' argument unpersuasive and that loss of use exclusion clearly applied based on subsection (2). The loss of use exclusion applies to claims arising out of the loss of use of tangible property, which has not been physically injured, resulting from either the insured's delayed performance of a contract, or an insured's faulty performance of that contract. See M & S Indus., 64 Wash.App. at 926, 827 P.2d 321; accord Milgard Mfg., Inc. v. Continental Ins. Co., 92 Or.App. 609, 759 P.2d 1111 (1988). This exclusion helps distinguish between that which is covered under the policy, i.e., the physical breakdown of the insured's product that results in some type of injury to person or property, and that which is not covered, i.e., the mere failure of the product to perform as well as warranted. This is true because `presumably [] the latter is a typical business risk whereas the former is more likely to have catastrophic consequences.' Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 458 N.E.2d 338, (1984) (quoting Honeycomb Sys., Inc. v. Admiral Ins. Co., 567 F.Supp. 1400, 1407 (D.Me.1983)). [3] Hayden Farms' argument conveniently ignores subsection (2) of the exclusion in its entirety. Subsection (2) specifically states that the policy does not apply to loss of use of tangible property which has not been physically injured or destroyed resulting from ... (2) the failure of [Krause's product] or work performed by or on behalf of [Krause] to meet the level of performance, quality, fitness or durability warranted or represented by [Krause].... CP at 280. Subsection (2) clearly bars coverage in this case and supports MOE's denial of its duty to defend. The gravamen of Hayden Farms' complaint is the failure of either Krause's grafts or grafting work to live up to the parties' expectations. The complaint does not assert that there was any physical injury to the tangible property that would render the exclusion inapplicable under either the exclusion's general language or its exception for sudden and accidental physical injury. To provide coverage here would transform Krause's CGL policy into a performance bond or malpractice insurance and substantially expand [MOE's] obligations under the policy beyond those reasonably contemplated by the parties. Mogavero, 640 F.Supp. at 87. Consequently, we hold that, even without the deposition testimony, the loss of use exclusion clearly and unambiguously excludes coverage for Hayden Farms' claims and supports MOE's denial of its duty to defend. See generally Diamaco, 97 Wash.App. at 337, 983 P.2d 707. Our holding is consistent with foreign jurisdictions that have applied the loss of use exclusion under analogous circumstances. [4] D.