A broadly worded exterior insulation and finish system (EIFS) exclusion in your policy may cancel your coverage. In a recent case, the U.S. District Court in Washington granted an insurance company’s motion to dismiss since the building that was the source of the claim had an EIFS exterior even though the defective work was unrelated to the siding. The court rejected the policyholder’s argument that the EIFS exclusion did not apply because the insured, Miller Roofing, had not performed any work on the showroom’s EIFS, but the court held that
“[t]he exclusion applies not only to property damage arising from EIFS-related work by the insured; it applies to property damage arising from “any” work by the insured on an exterior component, fixture, or feature of a structure, as long as ‘exterior insulation and finish system’ is used on any part of that structure.”
See First Mercury Ins. Co. v. Miller Roofing Enter., No. C11-0105-JCC, 2013 WL 662970 (W.D. Wash. Feb. 22, 2013). Miller Roofing had a contract with the building owner to replace three roofs over the building showroom. Soon thereafter, the roofs began to leak after the work was finished. This resulted in property damage to the owner’s inventory and floor. The building owner sued Miller Roofing for the damages caused by the leaks. Miller Roofing tendered to its commercial general liability (CGL) insurer, First Mercury. The insurer defended Miller Roofing under a reservation of rights. While the underlying case was pending, First Mercury filed a declaratory judgment action against Miller Roofing and the owners of the flooring company, seeking a ruling that it did not have to provide any coverage for the damage caused by the leaks. In its motion, First Mercury did not dispute that Miller Roofing’s defective work on the showroom’s roofs had caused “property damage” within the meaning of its policy. First Mercury moved for summary judgment based on the common EIFS exclusion in its policy that precluded coverage for “property damage” arising out of “[a]ny work or operation with respect to any exterior component, fixture or feature of any structure if any ‘exterior insulation and finish system’ [EIFS] is used on any part of that structure.” First Mercury argued that the exclusion applied because the building’s exterior walls were covered by EIFS cladding, and because the roofs that Miller Roofing had defectively replaced qualified as “exterior components” of the showroom. Miller Roofing countered that the EIFS exclusion did not apply because Miller Roofing had not installed any EIFS or performed any work on the building’s EIFS exterior.
In granting the motion, the court rejected Miller Roofing’s argument that this interpretation of the EIFS exclusion would permit First Mercury to “escape any liability for any negligent act performed by Miller Roofing on the building because cladding [EIFS] was placed over the exterior walls.” The court responded simply that “[u]fortunately for Defendants, that is the meaning of the policy Miller Roofing paid for and signed.”
The EIFS exclusion in this case is the same one that commonly appears in many CGL policies. Therefore, the holding is likely to have application well beyond Washington State. It is also another example of courts’ enforcing the plain meaning of insurance policy language as written. The plain language of the policy required only two conditions for the exclusion to apply: that the building have an EIFS, and that the work be on an exterior component, fixture, or feature of the building. There was no suggestion in the language of the exclusion that the two conditions be related, and the court appropriately ignored the fact that Miller Roofing had not performed any work on the building’s EIFS.