8.7.6 Exclusion (n) - Product Recalls, Repair, Replacement, and Removal

• Jurisdiction: Arizona

Similarly, Exclusion (n) of the policy pertains to damages for loss of use, withdrawal, repair, replacement, adjustment, or removal of the insured's work product. The court in Sturla, Inc. v. Fireman's Fund Insurance Co.,^[395] held that Exclusion (n) was clearly meant to negate coverage for the contractual liability of the insured, "as a source of goods or services . . . to make good on products or work which is defective or otherwise unsuitable because it was lacking in some capacity." The exclusion prevents coverage for damages for the withdrawal and replacement of the insured's defective work.

This exclusion precludes coverage for property damage to other property (that is not physically damaged) caused by the insured's faulty work.^[396] Its purpose is to basically negate coverage for loss of use claims arising from faulty workmanship when there is no physical injury to the property. This exclusion, like the other "business risks" exclusions is based on the premise that general liability coverage is not intended as a guarantee of the insured's work or product.^[397] However, the exclusion does not apply where there is physical damage to property other than the insured's work or if the insured's work cannot be repaired or replaced without causing physical injury to other property.^[398]

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Notes:

[395]684 P.2d 960 (Haw. 1986). The question presented to the court was whether a CGL policy issued to a carpet manufacturer by Fireman's Fund covered damages resulting from the rapid fading of the carpet after its delivery and installation. Shortly after the carpet had been delivered and installed, the developer and owners of various condominium units observed uneven and...