Damage to "Your work" exclusion on CGL policy

Your response to industry hot topics.

Moderators: Josh, independent guy

Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

Insismypassion wrote:I agree; the building is not "Your Work." But that's my opinion. Sadly, it's been taught and applied incorrectly for too long to pull it back to a reasonable application of the exclusion.

Sadly, several national training institutes perpetuate this seemingly incorrect interpretation.

But I have always felt, "people are entitled to be wrong until they learn what's right."

Forgot to mention - this was a GREAT post you put out.
Thank you. I think you probably know the national training institute that I got this from.

So let me ask you this question. If an electrical contractor were to say to you "I really want to get this insurance, you know in case a building burns down or something" what would you say?
LadyBroker
Insurance Journal Addict
Posts: 366
Joined: Fri Oct 13, 2006 9:10 pm
Location: Southern California

Re: Damage to "Your work" exclusion on CGL policy

Post by LadyBroker »

Something to keep in mind...I have taken some of these insurance classes, too, and have found they are not always the last word on how things really work in the industry. This is great discussion, and thanks to Rob for always getting a good conversation started. I would probably rely less on the textbook, and more on what my claims adjustors tell me.
"It's a typical day, on the road to Utopia.."
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

LadyBroker wrote:Something to keep in mind...I have taken some of these insurance classes, too, and have found they are not always the last word on how things really work in the industry. This is great discussion, and thanks to Rob for always getting a good conversation started. I would probably rely less on the textbook, and more on what my claims adjustors tell me.
Thanks. Unfortunately I don't have a specific claims adjuster to talk to.

I'm wondering if it is ok to mention the institute that put this study material out? I just didn't want to violate any "reproduction without permission" rules, although I did change the names and percentages in my example.
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

By the way, when I get some time (ha ha) I'm going to contact the institute and see If I can get some clarification from them.
Insismypassion
Insurance Journal Enthusiast
Posts: 21
Joined: Wed Apr 23, 2008 8:33 am

Re: Damage to "Your work" exclusion on CGL policy

Post by Insismypassion »

Rob,

I'm sorry for not posting back on the question you posed concerning the electircian. I left after my last post and was out of town for the next two days.

My opinion is the electrician is covered (provided he has adequate limits) for the building burning down, just not the cost to rewire the building - even if the new wiring is done by another electical contractor.

You let me know when you can generate extra time in the day of an insurance professional. We'll bottle the formula and make millions $$$$$$.
LadyBroker
Insurance Journal Addict
Posts: 366
Joined: Fri Oct 13, 2006 9:10 pm
Location: Southern California

Re: Damage to "Your work" exclusion on CGL policy

Post by LadyBroker »

Even if you get the Institute to clarify this position, it doesn't matter....what matters is how the CARRIER interpretes it. You have to be careful in these classes, too often they teach insurance as it should be, not as it is.

Good case in point - how many of you have been to a Construction class where they tell you to ask your Primary GL carrier to issue an Additional Insured certificate for the off-premise work completed in a Wrap? And how many times has your carrier actually said Yes?
"It's a typical day, on the road to Utopia.."
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

LadyBroker wrote:Even if you get the Institute to clarify this position, it doesn't matter....what matters is how the CARRIER interpretes it. You have to be careful in these classes, too often they teach insurance as it should be, not as it is.

Good case in point - how many of you have been to a Construction class where they tell you to ask your Primary GL carrier to issue an Additional Insured certificate for the off-premise work completed in a Wrap? And how many times has your carrier actually said Yes?
My point still remains that I can't see how anybody...carrier, claims adjuster, etc can make the case the resultant damage to the building is "your work". Can you?
mnicks
Insurance Journal Enthusiast
Posts: 8
Joined: Wed Mar 22, 2006 1:03 pm
Location: Dallas, TX

Re: Damage to "Your work" exclusion on CGL policy

Post by mnicks »

Think of it this way. Building is comprised of many components, electrical work being only one. Property damage arising out of electrician's work covers damage to all the other components of the building (work performed by third parties including his own sub). The CGL does not warrant or guarantee the electrician's work so the cost to redo his work is not covered. Not any different than a building inspector requiring that the work be torn out and redone, faulty workmanship is not covered.
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

mnicks wrote:Think of it this way. Building is comprised of many components, electrical work being only one. Property damage arising out of electrician's work covers damage to all the other components of the building (work performed by third parties including his own sub). The CGL does not warrant or guarantee the electrician's work so the cost to redo his work is not covered. Not any different than a building inspector requiring that the work be torn out and redone, faulty workmanship is not covered.
mnicks, that makes perfect sense, however what the course is teaching is that the structure itself is not covered and the amount that is not covered is based on the percentage of the work that the General Contractor (GC) did, which in this example is 30%. So what they are saying is that in this $1M loss, $300,000 is not covered regardless of whether part of that $300,000 is electrical rewiring or not. They are saying that if the General contractor had built 50% of the building and subbed out 50% that $500,000 would not be covered and if the GC had built 80% and subbed out 20% that $800,000 of the $1M would not be covered. That still makes no sense to me.
mnicks
Insurance Journal Enthusiast
Posts: 8
Joined: Wed Mar 22, 2006 1:03 pm
Location: Dallas, TX

Re: Damage to "Your work" exclusion on CGL policy

Post by mnicks »

Rob same principal still applies. I have no liability to myself. If the GC installed the walls, then later installs a sprinkler system that damages the wall the GC has to replace the wall without benefit of insurance. So if the GC collected 50% of the proceeds to build the structure, 50% of the cost to rebuild is not covered by his GL. He has incurred a liability to third parties for the cost of redoing their work through no fault of their own, which is where the 50% coverage kicks in.
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

mnicks wrote:Rob same principal still applies. I have no liability to myself. If the GC installed the walls, then later installs a sprinkler system that damages the wall the GC has to replace the wall without benefit of insurance. So if the GC collected 50% of the proceeds to build the structure, 50% of the cost to rebuild is not covered by his GL. He has incurred a liability to third parties for the cost of redoing their work through no fault of their own, which is where the 50% coverage kicks in.
Ok so what you are saying is if the GC did not sub out anything and built 100% of the structure, and then the structure was a total loss due to fire, that there is no money to be paid out?
mnicks
Insurance Journal Enthusiast
Posts: 8
Joined: Wed Mar 22, 2006 1:03 pm
Location: Dallas, TX

Re: Damage to "Your work" exclusion on CGL policy

Post by mnicks »

That is correct if he does 100% of the construction and his electrical installation causes a fire, there is no CGL coverage. The same institute you are quoting in this discussion suggests wording to use in a negotiation with your market that limits exclusion to the defective part of the work. If you have a subscription consult the Construction manual. Also a good discussion on adding "rip & tear" coverage for the building inspector scenerio.
Rob
Insurance Journal Addict
Posts: 366
Joined: Fri Mar 02, 2001 11:01 pm
Location: Sacramento
Contact:

Re: Damage to "Your work" exclusion on CGL policy

Post by Rob »

mnicks wrote:That is correct if he does 100% of the construction and his electrical installation causes a fire, there is no CGL coverage. The same institute you are quoting in this discussion suggests wording to use in a negotiation with your market that limits exclusion to the defective part of the work. If you have a subscription consult the Construction manual. Also a good discussion on adding "rip & tear" coverage for the building inspector scenerio.
ok so I'm a contractor purchasing insurance from you. How do you explain this and then also give an example of what would be covered?
Insismypassion
Insurance Journal Enthusiast
Posts: 21
Joined: Wed Apr 23, 2008 8:33 am

Re: Damage to "Your work" exclusion on CGL policy

Post by Insismypassion »

mnicks,

See my previous post (it's included in this post) and explain how the policy can give full coverage by exception to an exclusion then take away all the coverage just given by exception. At best it's ambiguous.

I think there may be an issue in timing here. If the structure burns down during construction due to something caused by the GC, there is no GL coverage due to the "Property Damage" Exclusion; but coverage is given back by the exception to PD exclusion for property included in the "products completed operations hazard."

Once the building has been completed and put to its intended use, if there is truly no completed operations coverage - why is there a premium charge (since the entire building is considered "Your Work" by the current application of the exclusion). When would products-completed operations coverage ever apply for a GC?

Previous post follows:

I, too, have always been taught the 70% paid and 30% not paid rule of thumb in a claim; but I think it is an incorrect interpretation of the policy language. In fact, the policy is actually rather ambiguous in regards to this coverage.

You have to combine two exclusions (and exceptions to the exclusions) and a definition to find the ambiguity.

Look at Exclusion J. - Damage to Property: This excludes "property damage" to
(2) Premises you sell, give away or abandon, if the "property damage" arises out of any part of those premises; and
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

On the face it appears that any house or building constructed by a GC (regardless of how much is subed out) would be excluded. This would settle the issue up front; but there are two exceptions to this exclusionary wording that must be considered:
Paragraph (2) of this exclusion does not apply if the premises are "your work" and were never occupied, rented or held for rental by you. And
Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard".

This gives coverage back to the contractor that builds or has a building constructed. In fact, it specfically gives back coverage for "property damage" included in the "products-completed operations hazard." Now, no part of the structure is excluded from coverage if loss or damage occurs.

Move to the subject exclusion: l. Damage To Your Work. When you couple this exclusion with Exclusion J., the combination can be confusing, but the intent appears to be that the only damage excluded in your "for instance" case is the cost to rewire. The damage to the building is covered under the exception to the "Property Damage" exlusion.

If it excludes all work done by the contractor, there would be no real purpose for have products-completed operations coverage - exclude it and enjoy the premium savings.


Just curious as I'm interested in all opinions and interpretations - I like learning. Also, are you aware of any court decisions on this issue?
mnicks
Insurance Journal Enthusiast
Posts: 8
Joined: Wed Mar 22, 2006 1:03 pm
Location: Dallas, TX

Re: Damage to "Your work" exclusion on CGL policy

Post by mnicks »

I think everyone is focusing on the structure built by the GC. Don't forget there is more to completed operations than that. Should the structure burn down as a result of the GC's faulty work and there are people inside the structure who are injured or killed then the GC has BI coverage. If the burning building damages adjacent properties then the GC has PD coverage for those structures.

Coverage A has two sections 1) Premises/Ops and 2) Products/Comp Ops each has it's own exclusions. What may be covered during course of construction (1) may not be covered after completion (2). Course of construction can be addressed with installation floaters or broad builders risk policies. Majority of GC's perform little of the actual work and sub the majority to artisan or specialty contractors. Thus the question on the Acord app "How much work is subcontracted". Based on the amount of work sub-ed the more or less likely you are to get admitted carrier coverage due to the completed operations issue of coverage for the subs work.

For those of you working with contractors, take a professional stand. Spend some time and money to educate yourself on contractor issues. I've posted my last comments.
Post Reply