8.7.2 Exclusion j(5) - Property Damage While the Insured Is on the Job Site

• Jurisdiction: Arizona

Exclusion j(5) excludes coverage for property damage to that particular part of real property upon which the insured was working and performing operations at the time of loss, provided that the property damage arises from said operations. The Arizona courts have not interpreted this exclusionary language. Courts from other jurisdictions, however, have held that Exclusion j(5) is unambiguous, and excludes coverage for property damage that must be repaired or replaced because the insured's work was incorrectly performed on the property.^[375] This clauses excludes coverage for damage to any part of real property upon which construction work is in progress, provided that the property damage arises out of the construction work. Some courts have held that the exclusion contains a temporal element, such that the exclusion only applies to damage that was caused during the time the insured was working on the property, and not property damage occurring after the work is completed.^[376]

As it pertains to exclusion j(5), the standard CGL policy provides that there is no coverage for "property damage" to "[t]hat 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." While Arizona has not specifically addressed the application of this exclusion, the better reasoned case law from other jurisdictions is focused on the fact that the exclusion is limited in both time and scope.^[377]

First, the performance of operations by the insured is referenced in the present tense. Accordingly, other jurisdictions have almost uniformly agreed that in order for this exclusion to apply, the claims must arise at the time the insured is actually performing the work on the property.^[378] Conversely, the exclusion does not apply to damages that take place after the operations are complete.^[379]

Secondly, the exclusion will only apply to that "particular part" of real property where the operations were being performed.^[380] in other words, the exclusion denies coverage for property damage to the particular part of real property that is the subject of the insured's work at the time of the damage, if the damage arises out of those operations.

The actual damage being claimed may not be related to consequential damages but may instead be solely based upon the repair of the allegedly defective construction. The damage thus arguably would...