"Your Product" Exclusion Is Moot

Scottsdale's CGL3 insured, Commercial Group West (CGW), built and installed modular living units. When transporting units to their sites, the modules are covered with reinforced plastic sheeting. Later, the sheeting is replaced with permanent roofing. This was the case when it shipped several units to a site owned by Lake Metigoshe Properties.

The units were to become part of a motel. After the units were attached to foundations, a severe thunderstorm occurred. Rainwater accumulated, breached the units' sheeting, and caused $270,000 in damage. Tri-State, the company that insured Lake Mitigoshe, paid for the damages and then sought reimbursement (via subrogation) from Scottsdale.

Scottsdale denied the request, relying on their policy exclusion for damage to an insured's product. The insurer then filed for a declaratory judgement asking for relief from any coverage or defense obligation.

The court focused on the policy wording as they considered both parties’ arguments. The court noted that the CGL policy did contain an exclusion for damage to an insured's product, but an exception was made for any "real property".

Tri-State and CGW held that, since the modular units were affixed to the building site, the exclusion was inapplicable to the, now, real property. Scottsdale's maintained that the attachment was irrelevant. In its opinion, the units were component products of a building project and not real property.

The court reviewed several cases and found it well established that structures permanently fixed to land acquired the status of real property. Further, it found that the policy wording, which did not include a definition of real property, created ambiguity. Since, in the court's opinion, a reasonable person could expect to have coverage under the given situation, it denied Scottsdale's motion.

Scottsdale Insurance Company, Plaintiff v. Tri-State Insurance Company of Minnesota and Commercial Group West, LLC, Defendants. U.S. District Court of North Dakota. Case No A4-03-32. February 20, 2004. Denied. 2004 CCH Personal and Commercial Liability Cases. Paragraph 8018.

* Editor's Note: This case involves a court of origin, but it is a District level decision (because of the diverse jurisdiction of the parties). We believe the topic and the district-level opinion merited our attention.