Coverage litigation concerning the so-called “business risk” exclusions in a general liability policy often times requires a very detailed inquiry into the scope of the insured’s work. The recent decision by a Texas appellate court in Evanston Ins. Co. v. D&L Masonry of Lubbock, Inc., 2011 Tex. App. LEXIS 2883 (Tex. App. Apr. 18, 2011) demonstrates the fact-intensive nature of such an inquiry.
The insured, D&L, was a contractor hired to perform masonry work on the exterior of a public school. Scheduling delays on the project necessitated that D&L perform its work out of sequence; specifically, after the building’s new windows and window frames had been installed. In an attempt to protect these items from being damaged by mortar, D&L applied tape to the windows frames and applied soap and water to the windows. It was nevertheless determined that these preventative measures did not fully protect the window frames from mortar, and that the measures actually caused further damage to the window frames. D&L was required to pay for the replacement of the frames at a cost of approximately $58,000. It subsequently sought coverage under its general liability policy issued by Evanston Insurance Company.
Evanston denied coverage to D&L based on exclusions j(5) and j(6) of its policy, also referred to as the business risk exclusions. These exclusions barred coverage for “property damage” to
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations;
(6) That particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it.
Further, the policy defined D&L’s work as:
- Work or operations performed by you or on your behalf, and
- Materials, parts or equipment furnished in connection with such work or operations.
The court noted that the propriety of Evanston’s coverage determination hinged on whether D&L, in preparing the window frames for the application of the mortar, and in actually applying the mortar, constituted work on the window frames. Evanston argued, among other things, that by applying tape to the window frames, and that by applying soap and water to the windows, D&L was working on the window frames, and as such, the exclusions should apply. D&L argued, however, that its work was restricted to applying bricks and mortar around the window frames, and that in performing its work, it caused damage to someone else’s (i.e., the school’s property), which should trigger coverage under a general liability policy.
In considering this question, the court found persuasive the fact that D&L’s contract called for it to perform masonry work only rather than work on the school’s windows and window frames. While D&L literally performed work on the windows and window frames, such efforts, explained the court, “came about only as a prophylactic measure to attempt to prevent damage.” In other words, the court took a very literal approach in determining what property D&L “was performing work on.” While the scope of D&L’s work undoubtedly required it to come into contact with the window frames, the court distinguished such contact from the work actually falling within the scope of D&L’s contract, which was masonry work.