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Posts Tagged ‘commercial general liability’

Court of Appeals clarifies “Your Work” Exclusion in CGL

Posted on: October 30th, 2019

By: Robert Bazzo

A frequently litigated issue in the commercial general liability (CGL) policy is the extent and limits of the coverage for contractors under the definition of “Your Work” and related exclusions. Under the insurance laws in most states, defective workmanship alone is not considered an accident and, therefore, not “property damage” as the result of an “occurrence” within the standard CGL definition.

In a recent Massachusetts case, All America Ins. Co. vs. Lampasona Concrete Corp. et al., the trial court granted the insurance company’s motion for summary judgment based on a finding that the “Your Work” policy exclusion applied to the claim against the insured.

The underlying construction projects related to a new hospital’s concrete floor installation, 90,000 square feet at a cost of $30 million. As part of the construction project, the subcontractors had to install a flooring system for the first floor. This system consisted of a concrete slab (Lampasona’s work), installed over a plastic vapor barrier which was done by another subcontractor. The finished first floor of the hospital included flooring tile (attached with adhesive) and carpeting, installed by other subcontractors on top of the concrete slab.

After completion of the hospital, the owner complained to the general contractor that first-floor tiles had become loose, were “tenting” and “blistering” and that the liquid adhesive was leaking from underneath the flooring. The damage was allegedly related to excessive moisture migrating through the concrete slab. The claimed excessive moisture was allegedly caused by Lampasona’s installation (work product [or “Lampasona’s work”]), including (1) Puncturing the vapor barrier; (2) Improperly mixing fiber reinforcement into the concrete; and (3) Improperly curing the concrete.

Based on these allegations, the trial court found coverage for the occurrence to be barred by the “Your Work” exclusion [TO AVOID THE POSSIBLE READING THAT THE INSURING AGREEMENT DID NOT APPLY IN THE FIRST INSTANCE]. The trial court focused on the definition of “Occurrence” and the policy exclusion stating the insurance does not apply to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘Your Work’ was incorrectly performed on it.” In the judge’s opinion, Lampasona’s work applied to the entire flooring structure because it was an “integral and inseparable part” of the construction of the flooring surface. Although the flooring surface consisted of several different layers, only one of which was placed by Lampanosa, together they constituted “one completed product: Interior flooring for the first floor” of the hospital.

On appeal, the court found that the “Your Work” exclusion did not apply. The appeals court agreed that a CGL policy does not provide coverage for faulty workmanship that damages only the insured’s work product. However, the policy does provide coverage if the faulty workmanship causes property damage to something other than the insured’s work product. The appellate judges determined that the trial court did not properly differentiate between Lampasona’s work and the work of the other subcontractors. It was not wrong to conclude that the vapor barrier, concrete slab, and floor tiles or carpeting could be characterized as layers of an integrated flooring system. However, just because the separate parts made up one system does not mean that the exclusion applied. Instead, said the appeals court, “Where Lampasona was hired to install one layer of the flooring system but caused discrete damage to the other layers, that damage falls outside the . . . exclusion.”

If you have any questions or would like more information, please contact Robert Bazzo at [email protected].

Construction Defects Can In Fact Be Accidents

Posted on: July 24th, 2013

By: Jonathan Kandel  

The Supreme Court of Georgia has further clarified the scope of coverage for construction defect claims under commercial general liability (CGL) insurance policies.  In Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Company, No. S13Q0462 (Ga. July 12, 2013), the court clarified that a construction defect claim constitutes an “occurrence,” as defined in a standard CGL policy, when the only damage alleged is to the work of the insured contractor.  While the court’s decision does not change the substantive scope of insurance coverage for construction defect claims, it shifts the focus of coverage.

In Taylor, a home builder’s insurance company filed a declaratory judgment action, seeking a declaration that there was no coverage for a class action lawsuit filed against the home builder.  The insured home builder had been sued by numerous homeowners, alleging that they suffered property damage to their houses, including water intrusion, cracked concrete slabs, and broken floors, due to the home builder’s alleged failure to include sufficient gravel under the homes’ foundations.  On appeal of the declaratory judgment action, the U.S. Court of Appeals for the Eleventh Circuit asked the Supreme Court of Georgia to clarify whether Georgia law requires damage to property other than the insured’s completed work for an “occurrence” to exist.  The Eleventh Circuit’s request appears to be based on the Supreme Court of Georgia’s decision in American Empire Surplus Lines Insurance Company v. Hathaway Development Company, 288 Ga. 749, 707 S.E.2d 369 (2011), which held that “an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property.”

The Supreme Court analyzed the usual and common meaning of “accident” – the operative term in the definition of “occurrence” – and concluded that the term refers to whether an event was intended or expected, not the nature or extent of the injury caused by the event or the identity of the person injured.  Based on its conclusion, the court held that an “occurrence,” as defined in a standard CGL policy, “does not require damage to the property or work of someone other than the insured.”

Recognizing that CGL coverage is not intended to insure against liabilities for the repair or correction of the insured’s faulty workmanship, the court explained that other provisions in a standard CGL policy account for that limitation.  For example, the court explained that coverage under a standard CGL policy is trigged by an “occurrence” that causes “property damage,” and a claim for the repair or replacement of faulty workmanship usually will not be for “property damage.”  The court also noted that claims for faulty workmanship may fall within the scope of certain “business risk” exclusions.

Finally, the court addressed whether the legal theory (or claim) asserted impacts the “occurrence” analysis.  Prior to Taylor, many Georgia courts found that there was no coverage when the only claim asserted against the insured was for breach of contract (not negligence).  The Supreme Court concluded that the legal theory (or claim) asserted usually will not determine whether the incident constitutes an “occurrence,” with one notable exception.  That being, when a “theory of liability is absolutely and necessarily inconsistent with the notion of an ‘accident’ – that is, when the theory of liability and the idea of an ‘accident’ are mutually exclusive – a claim premised upon such a theory of liability” cannot possibly constitute an “occurrence.”  The court identified fraud claims as an example of a theory of liability that is necessarily inconsistent with meaning of “accident.”   Moving forward, the availability of insurance coverage for construction defect claims will turn on whether there is “property damage,” as defined in a standard CGL policy, and whether exclusions to coverage apply.  The court’s decision brings Georgia law in line with the strong recent trend in other jurisdictions, including Florida, Maryland, South Carolina, Texas, and Virginia, among others.