Insurance Law

U.S. 8th Cir: No CGL Cover for Property Damage to Insured Contractor’s Own Defective Work and Resulting Loss on Use During Its On-Going Operations

Scott C. Turner   By Scott C. Turner, Attorney, Anderson Kill

On May 20, the Eighth Circuit of the U.S. Court of Appeals issued its decision in Spirtas Co. v. Nautilus Ins. Co., --- F.3d ---- 2013 U.S. App. LEXIS 10031 (8th Cir. 2013) (Mo. law) [enhanced version available to subscribers], holding that the Performing Operations Exclusion, the Incorrectly Performed Work Exclusion, and the Impaired Property Exclusion each separately barred CGL coverage for an insured bridge demolition contractor's bungled work during its on-going operations and resulting loss of use of a river to navigation.

Spirtas was hired to demolish a bridge over a river. It subcontracted the blasting and demolition of the longest span. Some of the explosive charges failed. The span was mangled, both making it much more expensive to remove and blocking the river to navigation for additional time. The two forms of "property damage" were the mangling of the bridge and the loss of use of the river to navigation.

The court found exclusion j(5) barred coverage for both forms of property damage.  That exclusion excludes coverage for property damage to "that particular part of real property on which you . . . are performing operations, if the 'property damage' arises out of those operations."

Next, the court found exclusion j(6) also barred coverage for both forms of property damage.  That exclusion excludes coverage for property damage to "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it."

Finally, the court found exclusion m. barred coverage because the bridge and the river were "impaired property".


The opinion ignores the "that particular part" limitation found in both exclusions j(5) and j(6).  Those exclusions only exclude coverage to the "particular part" that involves the work.  That would be the part of the river directly below the bridge. However, the use of the entire river was lost.  Apparently, the court thought the river was a single, indivisible whole without "parts".  But, it's common usage to say "The contractor only worked on the part of the river directly under the bridge."  Further, examples given by the policy drafting agency as to the scope of the "that particular part" language here included a fire caused by burning paint off a wall with a torch.  The drafting agency said the exclusions would only apply to exclude damage to the immediate area of the torch work at the time of the fire, not the entire wall.  So, an otherwise undifferentiated whole is still to be partitioned into covered and non-covered parts based on the location of the work within it.

The opinion fails to correctly interpret and apply the "real property on which you . . . are performing operations" limitation in exclusion j(5) and the similar language in j(6).  The term "on" in each should be read to mean the object of the policyholder's work, not the geographic location at which the work is performed.  So, the court should have found that Spirtas' operations were only being performed "on" the bridge, such that the exclusion did not apply to the loss of use of the river.

The opinion also incorrectly applies the term "incorporates" in the definition of "impaired property".  The exclusion was intended by the drafters to apply to the situation of a defective component being intentionally incorporated into a larger, compound piece of property being constructed.  That's completely different from rubble being dropped into a river.  The river doesn't "incorporate" the rubble in the intended sense, so it isn't "impaired property".

Scott C. Turner (, is of counsel at Anderson Kill, a national firm known for exclusively representing policyholders.  He is a construction insurance attorney with over 20 years of experience securing insurance recoveries for property losses and in securing defense and indemnification for liability resulting from construction disputes and defects. 

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