8.7.7 Federal v. P.A.T. Homes and Its Progeny

• Jurisdiction: Arizona

The continued viability of the supreme court's decision in Federal Insurance Co. v. P.A.T. Homes, Inc.,^[399] is questionable. First, the ambiguity analysis used in the decision was disapproved by the court in State Farm Mutual Automobile Ins. Co. v. Wilson.^[400] Second, relevant exclusions were not considered by the court because it determined that they were misreferenced within the policy. Third, the policy forms at issue have been changed throughout the insurance industry.

In P.A.T. Homes, the court found that the faulty workmanship exclusion contained within the CGL policy was ambiguous. The case involved a lawsuit brought against the insured, alleging that the insured failed to perform certain construction work in a workmanlike manner, requiring repair or replacement of the work. After a judgment was rendered against the insured, a garnishment was issued against the insurance company. The insurance company challenged the garnishment, claiming that there was no coverage under its policy. The policy provided:

This insurance does not apply:

(a) To liability assumed by the insured under any contractor or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the name insured's products or a warranty that work performed by or on behalf of the named insured

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(1) To...