In the recent case of Baker v. National Interstate Insurance Company (2009) 180 Cal.App.4th 1319, the Court of Appeals was asked to interpret a products completed operations hazard exclusion in a commercial general liability policy. That exclusion applied to “all ‘bodily injury’ and ‘property damage’ occurring away from the premises you own or rent and arising out of ‘your product’ or ‘your work’ . . . The court found that the exclusion applied both to the insured’s products once they left the insured’s possession and the insured’s work once that work was completed and put to use away from the insured’s premises. In other words, the exclusion was not limited to work on the insured’s own products.
In that case, the insurance company issued a CGL policy to Four Winds, a school bus business whose primary activity was transporting school children. Four Winds also performed inspections and mechanical services on school buses. Four Winds sold one of its buses to the decedent, who was the owner and operator of another bus transportation business, and subsequently performed inspection and repair services on the bus. While driving the bus, the decedent was involved in a fatal collision when the driver’s seat of the bus came loose from the floor and ejected her through the front windshield. The decedent’s family sued Four Winds and several other defendants alleging that the bus was defective and negligently maintained. Four Winds tendered its defense to its insurance company. The insurance company denied coverage on the grounds that the completed operations hazard exclusion applied to preclude coverage for the underlying wrongful death claims.
The trial court denied the insurance company’s motion for summary judgment finding that the products completed operations hazard exclusion only applied to product liability related claims and not to claims for negligent maintenance or inspection services.
The Court of Appeal reversed finding that the use of the disjunctive conjunction “or” between the phrases “your product” and “your work” in the exclusion unambiguously advised Four Winds that “a claim alleging bodily injury arising from either Four Winds’ ‘product,’ or from Four Winds’ ‘work,’ was excluded from the policy’s coverage.” The court rejected the argument that the products completed operations hazard exclusion was only intended to apply to “work on your products.” That argument was based on Insurance Company of North America v. Electronic Purification Co. (1967) 67 Cal.2d 679. The Court of Appeal disagreed that such an interpretation applied here where the policy included separate definitions for the terms “your product” and “your work.” The Court then concluded that because Four Winds’ inspection and maintenance work on the bus was done after the sale to the decedent, it was “your work” as defined in the exclusion and thus was not covered under the policy.