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Insurance Exclusions and the Importance of Reading Contracts


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By Doug Hanson
    
Background
A flooring company maintained a product show room in a leased building.  The exterior walls of the building were finished with an EIFS.  The company hired a roofing company to replace the roofs in 1997 and construction was completed in 1998.  Unfortunately, water began leaking into one of the show rooms in 2006.  Pursuant to oral agreements between the parties, the roof company attempted repairs in 2006, but the roof continued to leak.

The flooring company filed suit against the roof company for breach of contract.  The roofing company’s insurance carrier defended the lawsuit under a reservation of rights and filed a declaratory judgment action, which sought a determination as to whether the loss was a covered loss under the insurance policy.  The insurance policy contained an EIFS exclusion.

Court holds EIFS exclusion bars coverage
The flooring company argued that the EIFS exclusion should be inapplicable because the roof leak was a result of “defective workmanship to the roof itself.”  The roofing company neither installed the EIFS on the building nor performed repairs to the EIFS.  The Court held, however, that such arguments, if true, were irrelevant.

The Court found that the exclusion applied to property damage arising from any work by the roofing company on an exterior component, fixture or feature of a structure having an EIFS on any part of the structure.  The roof is an exterior component of the building as defined by the policy and the building had an EIFS system on the exterior walls.  The Court, therefore, held that coverage was excluded by the plain and ordinary language of the policy.

 

Take away
This case ultimately highlights the importance of reading a contract and understanding how it may obligate you or expose you to additional risk under certain circumstances. After waves of EIFS litigation, insurers became reluctant to insure EIFS failures, or, as seen in this case, even insure contractors working on structures with an EIFS. Accordingly, contractors should carefully read their insurance policy’s language (as well as any other contract) and determine the scope of any exclusion regarding an EIFS before performing repairs on any structure having an EIFS.


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