CGL Coverage for backcharge?

[floshoe]

Hello, I am new to this board.

I have run into a coverage situation which has led to some disagreements.

The insured on a CGL policy is a subcontractor on a construction project. He brought in additional subs, one of which caused property damage. It does not appear liability will rest on the insured. Investigation continues.

In the meantime, the general contractor has taken advantage of a provision in the construction contract which permits him to back charge the insured for any damage, regardless of fault. The insured now claims the CGL policy should kick in to reimburse him for the backcharge. I believe the contractual liability exclusion would apply. The CGL policy will not kick in until the insured is actually found liable for something.

Any thoughts? Are there any other forums which address these types of questions more specficially? Thanks!

[chedoggy]

I think what you want to analyze is whether the backcharge results from third party property damage. From what you describe, it sounds like purely economic loss. If so, you do not even get to the contractual liability exclusion.

michael

[ALLSORTS]

The Contractor hired the Sub-K'tor who then hired the Sub-Sub K'tor. The Sub-Sub K'tor created the damage. Was the damage charged to Contractor? Is the Contractor an "Additional Insured" under the Sub-K'tors CGL? It would appear that the Sub-K'tor is directly responsible for the Sub-Sub K'tor's damages. Reimbursements issues are between these two. Look at this way: If the damaged party files suit against the General Contractor, would the carrier for the Sub-K'tor be obligated to defend the General as an "Additional Insured" absent the Sub-Sub-K'tor carrying any CGL insurance or named as an "Additional Insured" itself under the Sub-K'tor's CGL?

[Hope]

I agree with Michael. If it's economic loss, breach of contract for delays, etc...you won't find coverage. If you're a member of the Independent Insurance Agents Association you can log on to their site and access their experts opinions on various subjects. You can also post your question to their expert panel for a response. I've found it very helpful on coverage interpretation issues, etc...

[LadyBroker]

Did the sub-sub contractor name the Sub Contractor as an Additional Insured? Wouldn't that just run the damages up the food chain, then?

[St.CaptiveGuy]

Absent evidence of fault, this is a payment issue instead of an insurance issue.

But what was the damage to? Did the insured's sub damage it's own work or the insured's? Depending on the answer you might be able to file a claim under CGL for the damages caused by the sub because ISO CGL doesn't exclude damage to your work IF the damage was done by a sub.

Alternatively, why doesn't the insured just back-charge his own sub?

[R Levine]

Two sources are IMRI and reedconstructiondata.com. There are many provisions in a contract that are not insurable, like a Holdharmless agreement. In NY, I have not seen a contract in years that does not have one. But contractors sign them to get the job. It is our responsibility to educate our clients that they should obtain advise from all their Professional Services before signing a contract to be sure they understand what they are signing and the obligations they are undertaking.
I beleive the GC has the right to charge back. Without negligence, the contractors policy will not pay. Your contractor should have a contract with their subs that mirror their responsibilities to the GC.

[ALLSORTS]

Eventually everyone is involved. What was damaged? How? How much? Some courts, including Texas, have decided that property damage "arising out of" one's work is covered under the CGL's "loss of use" of the property being worked on. See, Lamar Homes and Roberts, Sensabaugh. This was publicized by IJ. Most of us are still under the sole impression that "your work" must cause BI or PD to others, otherwise damage to the work should be paid from the pocket (economic loss) of the sub, sub-sub, or GC. Not enough facts here. Did the sub-sub's "work" result in "damage to others" or "the property owner"? Regardless,it would still go up the "food chain" as mentioned by one of the bloggers. Let the carriers battle it out. However, most sub-subs do not carry insurance.