(April 2019)
The Insurance Services Office (ISO) Commercial General Liability (CGL) Coverage Forms provide bodily injury and property damage liability coverage, subject to certain exclusions. An important property damage exclusion that applies to and affects contractors is Exclusion l. Damage to Your Work. It is important to clearly understand how this exclusion operates because it has an exception that adds back some coverage for work done for the named insured by the subcontractors that work on its behalf.
Two definitions must be examined to properly evaluate the issue.
16. Products-completed
operations hazard
Bodily injury and property damage that occurs away from the named insured's owned or rented premises as a result of the named insured's product or work. Products that are in the named insured's physical possession and work that has not yet been either completed or abandoned are not product-completed operations hazard.
Work is considered completed when the work called for in the named insured’s contract has been completed. When there is a contract for work at multiple sites, the work at one site is considered completed even if there is still work to be done at other sites. Whenever part of work done at a site is put to its intended use by any party, other than a contractor or subcontractor still working on the same project, that part of the work is considered complete. Work is considered completed, even if it may still need service, maintenance, correction, repair, or replacement.
This definition does not include bodily injury or property damage that arises from any of the following:
Note: Careful examination of this definition reveals that work done by a contractor or sub-contractor does not become a product or a completed operation or fall into the definition of the products-completed operations hazard until it is finished or completed as defined. This is an important concept that must be understood in order to understand when there is coverage and when there is not.
22. Your work
This is work or operations performed by the named insured or by others on its behalf. Materials, parts, or equipment furnished in connection with such work are included. The warranties or representations made concerning the fitness, quality, durability, performance, or use of the work are also your work. The providing of warnings or instructions that are adequate is also your work and this includes the failing to provide them.
Note: This is the building or structure in the course of construction for a general or building contractor. For an air conditioning contractor, it is the materials, equipment, and parts of the air-conditioning system being installed.
l. Damage to Your Work
The next item to review is the exclusion and the exception to it that provides limited coverage for the work that subcontractors perform. This exclusion deletes property damage coverage to work when the damage arises out of that work but only when the work falls into the definition of products-completed operations hazard. This means there is no property damage coverage for the work that an insured contractor completed and released to the customer or that was put to its intended use when that damage is due to the insured contractor’s own work. There is an exception when the damage to the work is the result of action performed by a subcontractor.
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Example: Michelle has installed a complete closet system into Millie’s home. She hired Felix to install the electrical and John to install the plumbing. After the job is complete and Millie has paid for the job, three incidents occur and Michelle’s CGL insurer is asked to respond:
Note: The
insurer will subrogate against both John and Felix for the damage caused by
them. |
The Damage to Your Work is strictly a products-completed operations hazard exclusion and the subcontractors exception, therefore, applies only for losses within the products-completed operations hazard.
When damage to work occurs during ongoing operations and is caused by the insured or by a subcontractor, there is no coverage because of Exclusion j. Damage to Property items (5) and (6) and there is no exception.
Related Court Cases:
Insurer Owes Duty to Respond to Loss Involving Construction Defects
Property Damage Exclusion Held Applicable to Entire Renovation Area
Care, Custody or Control Exclusion Held Applicable When Only "Care" Was Exercised by Insured
Work Project Exclusion Held Applicable to Control of Project by Construction Manager
General Contractor's Policy Excludes Work Performed by Subcontractor