| COMMITTEES’ CORNER |
INSURANCE COVERAGE
COMMERCIAL
General Liability
Most CGL policies exclude
coverage of repairs or replacement
for contractor’s own faulty work.
Anybody insure a contractor that has an exposure
to performing faulty work? I suspect most folks
reading this do. Over the years, many claims
involving faulty work performed by a contractor
have been denied due to certain exclusions found
in general liability policies. The most prevalent of
these exclusions are known as the “your product”
and “your work” exclusions. These exclusions
remove coverage for losses that involve the
contractor’s time, material, and work performed,
but aren’t considered part of the “bodily injury”
or “property damage” the contractor’s work
caused.
Here is the actual wording from most ISO
Commercial General Liability (CGL) policies;
Under the exclusions section, j.5 states, “That
particular part of real property on which you
or any contractors or subcontractors working
directly or indirectly on your behalf are
performing operations, if the “property damage”
arises out of those operations.”
Further, j.6 states, “That particular part of any
property that must be restored, repaired or
replaced because “your work” was incorrectly
performed on it.”
To put it in simplest terms, these exclusions
endeavor to separate the bodily injury or property
David Vogel
Insurance Coverage
Committee Member
damage suffered by a 3rd party from the cost to
replace or repair the contractor’s own work. To
cover the cost to redo the contractor’s work would
be indemnifying the contractor back to himself.
An example would be if an HVAC contractor is
installing a new furnace in a home and during the
installation the contractor starts a fire and the
house burns down. Included in the loss would
be the cost to replace the new furnace. The
CGL policy endeavors to pay for the property
damage caused by the contractor (the house,
contents, etc) but removes the furnace from the
loss settlement. The furnace represents “that
particular part of real property…” which is
referenced in exclusion j.5.
These exclusions can cause some real heartburn
for contractors because it’s such a confusing
limitation of coverage. Oftentimes, the majority of
a “loss” can be excluded because of this wording in
insurance contracts, and the contractor may have
the expectation that his insurance company is going
to fully indemnify his customer.
It’s prudent to disclose this limitation in coverage
to your clients and seek out coverage, if possible, to
fill this gap. Perhaps a Contractors E&O policy can
address this exposure or the CGL carrier will offer
a small buy back in coverage to at least partially fill
this gap.