A commercial general liability policy’s “products-completed operations hazard” exclusion precludes coverage for bodily injuries arising out of the insured’s completed services, even if those services are not related to the insured’s products. ( Baker v. Nat’l Interstate Ins. Co. (2010) 180 Cal. App. 4th 1319)
Facts
Four Winds Day Camp (“Four Winds”) sold one of its used school buses to La Shaun Clemmons. Two months later, Four Winds agreed to perform certain inspections on the bus that were mandated by law, in exchange for payment that was separate and apart from the bus sale price. As part of its inspection, Four Winds performed related maintenance work, including repairs to the bolts holding down the seats. Several months later, Clemmons was driving the bus when she was involved in a collision. The driver’s seat of the bus broke loose from the floor, and Clemmons was ejected through the windshield, causing her to sustain fatal injuries.
Clemmons’ husband, Antonio Baker, along with their sons (collectively “the Bakers”) filed a wrongful death lawsuit against Four Winds. Four Winds tendered defense of the lawsuit to its commercial general liability carrier, American National Fire Insurance Company (“American”). American’s policy excluded coverage for claims falling within the “products-completed operations hazard,” which the policy defined as including all “‘bodily injury’ and ‘property damage ‘occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work.’” Maintaining that the lawsuit fell within the “products-completed operations hazard,” American declined to defend Four Winds.
Four Winds assigned its rights under the policy to the Bakers, who filed suit against American. The trial court ruled in favor of the Bakers, finding that under the California Supreme Court’s holding in Insurance Co. of North America v. Electronic Purification Co. (1967) 67 Cal.2d 679, such exclusions only apply to the insured’s operations if they were performed on its products. The trial court thus held that the exclusion did not apply because Four Wind’s inspection services were independent of the sale of its product, the bus. American appealed.
Holding
The Court of Appeal reversed. First, it distinguished Electronic Purification on the grounds that the exclusion there was written in such a way that products and operations were meant to be interrelated, with the result that the exclusion only barred coverage for operations if they were related to the insured’s product. The Court of Appeal then noted that the American policy’s definition of the “products-completed operations hazard,” which was markedly different from the exclusion in Electronic Purification , clearly excluded bodily injury arising out of “your product” or “your work.” Focusing on the use of the disjunctive conjunction “or,” the court concluded that the exclusion applied to the insured’s “work,” regardless of whether the work was related to the insured’s “products.”
Applying that reading to the underlying action, the Court of Appeal concluded that Four Winds’ inspection of the bus in return for payment clearly fell within the exclusion. The Court reasoned that “the common understanding of ‘work’ includes a person’s services performed in return for payment of money.” Since Four Winds performed inspection services for a customer for payment, any bodily injury arising out of those completed services was necessarily excluded from coverage.
Comment
Rejecting the argument that its holding would undo decades of insurance jurisprudence based on Electronic Purification, the Court of Appeal noted that it was “not decree[ing] as a matter of law that ‘products’ and ‘completed operations’ shall no longer be considered ‘related’ elements under a CGL policy,” and that the interpretation of the exclusion will depend on the exact policy language at issue. However, as a practical matter, since the American policy contained a standardized definition of “products-completed operations” that appears in many commercial general liability today, the Baker decision will likely supplant Electronic Purification as the preeminent case on “products-completed operations” exclusions in commercial general liability policies.