The Ductwork That Was Not Northline's Work

The exclusion bars property damage to "your work" arising out of it, including the cost to repair or replace that work. But the standard exception restores coverage when the damaged work, or the work out of which the damage arose, was performed on your behalf by a subcontractor. Northline's work here was performed by Dependable.

• $85,000 tear-out and replacement of the ductwork - this is damage to "your work," squarely excluded by the base exclusion, but the subcontractor exception removes it from the exclusion. Covered.
• $60,000 of ceilings, insulation, and finish work - damage to property other than the insured's work, caused by that work. Covered; the exclusion never applied to it in the first place.
• $120,000 mold remediation - physical injury to tangible property (the building materials), caused by an occurrence. Covered as property damage, subject to whether the pollution exclusion is argued; mold from a construction defect at a building is generally not the kind of pollutant release that exclusion targets, so the better answer is coverage with a reservation.
• $200,000 tenant asthma claim - bodily injury. The "your work" exclusion is a property-damage exclusion and does not reach it. Covered under the bodily injury limits, subject to the per-occurrence and aggregate limits.

The impaired-property exclusion targets a narrow gap: tangible property that has not been physically injured but cannot be used because it incorporates the insured's product or work, where the loss can be cured by repairing, replacing, or removing that work. Its classic case is a defective component that shuts down a working plant - pure loss of use, no physical damage.

On these facts there is actual physical injury: saturated ceilings, ruined insulation, mold in wall cavities. Physically damaged property is not "impaired property," so the exclusion cannot reach the $60,000, the $120,000, or the tear-out.

The exclusion would matter if the claim were only for delay: for example, the owner's claim that 40 units sat empty for three weeks while the correct ductwork was reordered, with no damage to anything else. That pure loss-of-use claim is excluded, and it also fails the property damage definition, which requires physical injury to tangible property or loss of use of property that has been physically injured.

Bottom line for the adjuster: separate the schedule-delay claim (no coverage) from the physical-damage claims (coverage) rather than treating the tender as all or nothing.

Two policies now stand behind the same loss, and additional-insured status is what makes the tender work.

• Dependable's carrier owes Northline a defense and indemnity for liability arising out of Dependable's work - but only within the scope of the additional insured endorsement. Verify the form: an ongoing-operations-only wording will not respond to a completed-operations claim once the building was turned over, which is precisely the posture here. The endorsement must reach completed operations.
• Primary and non-contributory wording determines order. If Dependable's endorsement is primary and non-contributory, it responds first, and Northline's own CGL steps back to excess or drops out entirely.
• Contractual liability on Northline's policy covers its assumed indemnity obligation to the owner only to the extent the subcontract requires it and the obligation is not broader than the standard insured contract language.
• Insured-versus-insured language in Dependable's policy, and any employer's liability or auto exclusion, should be checked before the carrier commits.

Practical step: confirm the certificate is not the endorsement, obtain the actual additional insured form and its effective dates, confirm the subcontract's insurance clause, and cross-notice both carriers in writing so no carrier can later claim late notice prejudice. Both policies share the same per-occurrence limit, and the excess layer on Northline's program should be noticed as well.