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Courts and Coverage

Even More Confusion Regarding the "Damage to Property" Exclusion

David Knapp | June 7, 2024

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A hallway with one wall showing cracked drywall.

In a May 17, 2019, Expert Commentary article, "More Confusion Regarding the 'Damage to Property' Exclusion," I wrote about how the courts are split on the meaning of the phrase "that particular part" in paragraphs j(5) and j(6) of the "damage to property" exclusion in standard commercial general liability (CGL) policies. This has generated significant confusion around the scope of the exclusion. Since then, the Eleventh Circuit Court of Appeals has issued two potentially contradictory decisions addressing this language, adding even more confusion to the state of the law concerning this exclusion.

The relevant portions of the "damage to property" exclusion provide as follows:

j. Damage To Property

"Property damage" to:

(5) That particular part of any 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; or

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

Courts have generally interpreted "that particular part" in one of three ways.

First, consistent with the drafting history of the exclusion, 1 some courts have recognized that the phrase "that particular part" is limiting and narrows the scope of the exclusion to the specific unit of property that is being worked on at the time of the damage or that had incorrect work performed on it.

Second, some courts have construed the exclusion broadly to mean that there is no coverage for damage to any part of a project that is within the scope of an insured's work, regardless of whether the insured was working on the specific portion of property that was damaged at the time the damage took place or whether the specific damaged property was the subject of the incorrect work.

Third, some courts find both readings of the language reasonable, leading to an ambiguity requiring strict construction against the insurer. 2

Court Adopts Broad Construction of "That Particular Part" in 2021

In 2021, the Eleventh Circuit decided Travelers Indem. Co. v. Richard McKenzie & Sons, Inc., 10 F.4th 1255 (11th Cir 2021). In that case, the owner of a citrus grove hired McKenzie, the insured, to oversee all aspects of his groves. The owner brought suit against McKenzie, alleging that McKenzie fraudulently invoiced the owner for unplanted trees and unused fertilizer and fuel and that McKenzie negligently managed the grove, causing damage to the trees and land.

The complaint originally did not contain a claim for negligence, but the owner later amended his complaint to add the negligence claims upon finding out that McKenzie had an insurance policy issued by Travelers. Thereafter, the owner and McKenzie settled the fraud claims for $200,000. The owner and McKenzie also settled the negligence claims, entering into a consent judgment for $2,965,750, with an agreement that the owner would only collect from Travelers.

Travelers subsequently filed a declaratory judgment action, asserting it had no duty to defend or indemnify McKenzie in connection with the underlying action and contending that the consent judgment was collusive and unreasonable. Among other arguments, Travelers argued that exclusion j(5) applied (exclusion j(6) was inapplicable because of a specific endorsement added to the insured's policy).

The district court ruled in favor of Travelers, holding that it had no duty to defend or indemnify McKenzie because all of the alleged damages to the grove fell within the exclusion. The Eleventh Circuit affirmed, reasoning as follows:

Narrowing the focus, the "particular part of real property" that is excluded from coverage under 2.j.(5) is the property "on which [McKenzie] … [was] performing operations." To begin defining "[t]hat particular part of real property," then, we must first define McKenzie's operations. Florida law gives us a general definition: "operations" for 2.j.(5) purposes means "work done in the performance of the insured contractor's contract." According to Hermanns' complaint, McKenzie contracted to "manage, maintain and harvest citrus trees located [on Hermanns'] Grove." Those contractual duties made McKenzie "responsible to ensure that the groves were properly planted, watered, fertilized, treated and harvested," as well as "for the proper repair and maintenance of the Grove drainage canals and irrigation system." The complaint makes plain that McKenzie's "operations" were broad.

The complaint also alleges that the damage happened to the real property "on which" McKenzie was performing operations. The only land the complaint refers to is the parcels making up the citrus groves, and the complaint expressly groups all of those parcels together and refers to them collectively as "the 'Groves.'" And, as mentioned, the complaint then identifies McKenzie's "operations" as covering "the Groves." The only fair reading of the complaint is that McKenzie's operations were on all of the property that the complaint alleges was damaged: the groves. There is no other property to which the complaint refers or could be referring when it alleges that McKenzie's negligence "has caused damages to [Hermanns]" that required clearing "70 to 100 acres of land to compensate for the past improper care."

Id. at 1263 (citations omitted).

The court's discussion—particularly the reference to the breadth of McKenzie's contractual duties—appears to suggest the court was construing "that particular part … on which you … are performing operations" broadly to mean all of McKenzie's contractual duties, regardless of whether McKenzie was actually performing them at the time of the property damage.

However, the court notably concluded that the "alleged property damage happened when McKenzie '[was] performing operations' [because t]he damage to the citrus groves was done when he underplanted and failed to properly maintain and treat the trees that he did plant." Id. at 1263.

Interestingly, the Eleventh Circuit omitted any discussion of the drafting history of the phrase "that particular part" in the "damage to property" exclusion or the fact that other jurisdictions have construed the exclusion narrowly, even though the drafting history and treatment by other courts were the subject of an amicus curiae brief filed in support of McKenzie.

While it appeared that the Eleventh Circuit was siding with the courts that applied a broad construction to the phrase "that particular part," a recent decision from the same court suggests that may not be the case.

Court Potentially Opens Door for a Narrow Construction in 2024

In Southern-Owners Ins. Co. v. MAC Contractors of Fla., LLC, 768 Fed. App'x 970 (11th Cir. Apr. 11, 2024), the Eleventh Circuit considered a dispute between Southern Owners Insurance Company (SOIC) and its insured, KJIMS Construction, over coverage for an underlying action alleging damages to a custom home during its construction.

The complaint in the underlying action contained the following notice of defects:

"[r]epair loose, broken or chipped pavers in driveway and walkways and install edge restraints"; "[r]epair underside of lap siding—inconsistent paint finish at bottom of boards"; "[r]epair chatter marks on T&G ceilings"; "repair damage to all exterior doors" and "[r]epair all pocket doors"; "[r]eplace damaged top stair tread"; "[r]emedy damage to hardwood floors, includ[ing] damage resulting from use of blue tape and dirt"; "[r]epair metal roof dents, scratches and hems"; "[c]lean wall and ceiling paint on cabinets"; "[r]emove paint spots on baseboards throughout the house"; "[r]emedy scratches in granite"; and "[p]atch and paint all holes in ceilings and walls and twin holes in exterior hardi plank."

The underlying complaint sought damages for having to repair and remediate the alleged defects created by KJIMS. The claim between the homeowner and KJIMS eventually settled for $70,000, and KJIMS withdrew its claim for indemnification in the declaratory judgment action, leaving only the issue of SOIC's duty to defend.

In the declaratory judgment action, SOIC contended that j(5) 3 precluded coverage because "that particular part" should be construed broadly "by reference to the scope of the insured's project" and since "KJIMS was the general contractor … [the] exclusion[] bar[s] coverage for any property damage at the project site caused by KJIMS or its subcontractors." SOIC cited McKenzie & Sons as support for its position, arguing that because KJIMS was responsible for the entire project as the general contractor, it was like the citrus grove manager in McKenzie & Sons.

KJIMS argued for a narrow interpretation of "that particular part," asserting that the phrase restricts the exclusion to only the distinct part or unit of the project being worked on, rather than the entire scope of the contractor's work.

The Eleventh Circuit, issuing an unpublished decision, essentially dodged ruling on the substance of the arguments, confining its holding to a very narrow ground. Specifically, the court held that even if McKenzie & Sons were on point—an issue the Eleventh Circuit notably did not decide—it would not be determinative because McKenzie & Sons "was decided in August 2021, nearly 2 years after the underlying lawsuit settled. So, it does not speak directly to the state of the 'law at the time' of the underlying lawsuit or 'retroactively justify [the] refusal to offer a defense.'" In other words, even if McKenzie & Sons required a broad construction of "that particular part" (which the court does not concede), it was not the law at the time SOIC's duty to defend was triggered and, therefore, did not impact SOIC's obligation to defend KJIMS.

While this narrow holding in an unpublished decision would otherwise be unremarkable, the decision is interesting because the court did not stop there. Instead, the court went out of its way to discuss both the drafting history of the "damage to property" exclusion and case law from other jurisdictions where courts have found that it should be construed narrowly.

For instance, the court cited Fortney & Weygandt, Inc. v. American Mfrs. Mut. Ins. Co., 595 F.3d 308, 311 (6th Cir. 2010), which involved the duty to defend a general contractor for constructing a building with a defective foundation, in which the Sixth Circuit Court of Appeals opined that the phrase "that particular part" was "trebly restrictive," making clear that the exclusion applies only to "the distinct component parts of a building" on which work was being performed "and not to the building generally."

The Eleventh Circuit also cited Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 217 (5th Cir. 2009), where the Fifth Circuit Court of Appeals held exclusion j(6) did not apply because "[t]he exterior finishes and retaining walls were distinct component parts that were each the subject of separate construction processes and are severable from the interior drywall, stud framing, electrical wiring, and wood flooring."

The court also noted some Florida courts had adopted a narrow view of the language. See Essex Ins. Co. v. Kart Constr., Inc., No. 8:14-cv-356, 2015 WL 4730540, 2015 U.S. Dist. LEXIS 104514 (M.D. Fla. Aug. 10, 2015) (adopting the narrower view that "the dispositive issue" for j(5) "is the 'operations' that [the insured] performed at the moment of the accident, not the tasks that the contract explicitly contemplates").

The court also acknowledged that Insurance Services Office, Inc. (ISO), drafting history showed the intent of "that particular part" was to restrict the scope of the exclusion to the specific portion of property being worked on at the time of the damage. MAC Contractors ("The narrower view was also supported by the body that drafted the Particular Part exclusions.")

The discussion in the MAC Contractors decision contrasts sharply with the decision in McKenzie & Sons, where the court failed to acknowledge the drafting history or the authority adopting a narrow construction of the exclusions.

While MAC Contractors is an unpublished decision with a narrow holding and, therefore, does not overrule or change the holding of McKenzie & Sons, it suggests that the Eleventh Circuit may not have fully closed the door on a narrow reading of the "damage to property" exclusion in the wake of McKenzie & Sons. For example, it is notable that the court did not hold that McKenzie & Sons applied to the facts of this case or that a broad reading of "that particular part" was always required.

Indeed, one possible reading of McKenzie & Sons is that the court determined that the property damage occurred simultaneously with the work on the property that was damaged 4 and, therefore, the holding was not inconsistent with a narrow reading of "that particular part" despite the court using language suggesting a broader interpretation. Another possibility is simply that "bad facts make bad law" and that the underlying action in McKenzie & Sons involved claims of fraud and an allegedly collusive settlement, which may not serve as the best basis for precedent. Or, perhaps, the Eleventh Circuit's discussion in MAC Contractors of the drafting history of the exclusion—and the narrow construction given to it by other courts—signals nothing at all and the Eleventh Circuit does not intend to follow that drafting history or those other courts.

One thing is certain, the recent decisions by the Eleventh Circuit certainly have not cleared up the confusion surrounding the "damage to property" exclusion.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.


1 Craig F. Stanovich, "Broad Form Property Damage—A Look Back," IRMI, September 1, 2013, emphasis in original, citing "CIRCULAR—Broad Form Property Damage Coverage Explained," ISO, GL–79 12, January 29, 1979.
3 The relevant sections of the "damage to your work" exclusion in the policy in MAC Contractors were Sections j(6) and j(7); however, they were identical to Sections j(5) and j(6) of the standard Insurance Services Office, Inc. (ISO), policy, so the court referred to them as Sections j(5) and j(6). Id. at *2 ("Exclusions j(6) and j(7) in the subject policy are identical to exclusions j(5) and j(6) in the standard CGL coverage form, respectively. For consistency with the case law, we'll use the latter, standard numbering to describe the Particular Part exclusions.").
4 See McKenzie & Sons, 10 F.4th at 1263 ("The alleged property damage happened when McKenzie '[was] performing operations.' The damage to the citrus groves was done when he underplanted and failed to properly maintain and treat the trees that he did plant.").