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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 firstname.lastname@example.org.