Commercial general liability (“CGL”) policies are dense. They are confusing. And they have language that the insured generally doesn’t understand – and doesn’t ask about. One gem of an exclusion that is seldom questioned is the “Your Product” exclusion.
While the “Your Product” exclusion gets little judicial attention, a case out of Florida examined this very topic in Liberty Mutual Fire Ins. Co. v. MI Windows & Doors, Inc., 2013 WL 4734045 (Fla.App. 2 Dist. Sept. 4, 2013). The case serves as a reminder to policyholders that often misunderstood exclusions reduce their scope of coverage. In that case, MI Windows was a manufacturer of windows and doors. It had a CGL policy with Liberty Mutual. In the late 1990’s and early 2000’s, MI sold windows and doors to All Seasons, which installed these windows and doors in five condominium projects along the Alabama coast. In two of these condominiums, the doors were installed with no change. In the other three, All Seasons manufactured and installed transoms running atop the sliding-glass doors. This change weakened the structural integrity of the doors.
During MI Windows’ policy period, the Alabama coast was slammed by several tropical storms and Hurricane Ivan. These storms severely damaged the condominiums where MI Windows’ doors and windows had been installed by All Seasons. MI Windows settled these lawsuits, and then sued Liberty Mutual to recover the consequential damages and cost of repairing and replacing the defective doors or windows at each condominium. The CGL contained a “Your Products” exclusion which stated: “Exclusions -- This insurance does not apply to: Damage to Your Product. ‘Property damage’ to ‘your product’ arising out of it or any part of it.”
During the trial, the Court determined that the “your product” exclusion did not apply to the doors with transoms, altered by All Seasons, because the doors “significantly changed by others after the sale, contributing to the consequential damages suffered.” The Court found damages of $3.4 Million and awarded MI Windows the policy limit of $2 Million. Liberty Mutual appealed, asserting the trial court erred in its interpretation of the “Your Product” exclusion.
The Appellate Court reviewed prior cases that held the “Your Product” exclusion did not apply. In one such case, the insured was a manufacturer of sheet metal that was later stamped into washers by the purchaser. These new washers became a “new product” and therefore the exclusion did not apply. In a separate case, the court held that paint that had baked into jalousies were “no longer identifiable as a separate entity” and was covered by the liability insurance policy. Based on these rulings, the Appellate Court was charged with determining whether All Seasons created a “new product” by adding the transoms onto the doors and windows manufactured by MI Windows. The Appellate Court held that, despite the addition of these transoms, “[t]he doors retained their identity . . . They continued to operate as sliding glass doors. Thus, the doors remained MI Windows’ product, and the ‘Your Product’ exclusion precludes any damages awarded to replace them.”
In short, the Appellate Court overruled the trial court’s holdings, noting that the addition of a transom was not enough to alter the product so fundamentally to turn it into a new product that would provide coverage not excluded by the “Your Product” provisions. This ruling casts ripples through uncharted legal waters, as it suggests that in order for a manufacturer’s product to be covered by the manufacturer’s CGL, it must be fundamentally altered by an outside third-party after the sale. A simple mechanical alteration will not suffice. Something larger is required. Manufacturers always should consider carrying products liability coverage, which is geared to providing coverage where the “Your Products” exclusions negates it in a CGL policy. Manufacturers of products will usually have a gap in their insurance coverage if they merely rely on their CGL policy.
Frank Cragle is a trial lawyer and a member of Hirschler Fleischer’s Insurance Recovery Team. He handles a variety of commercial business disputes, including insurance recovery and policyholder claims. Frank also devotes a substantial portion of his time to business tort litigation and intellectual property claims. For more information, contact Frank at 804.771.9515 or firstname.lastname@example.org.
Kristen M. Chatterton