Inconsistency Is the Norm in Construction Liability Coverage

By | October 17, 2011

  • October 17, 2011 at 2:17 pm
    Jeff Betts says:
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    Generally speaking, without construction errors and omissions coverage, this type of claim will not be covered by the contractors policy who actually built the wall. However, most unendorsed policies for the general contractor will provide “poor workmanship” coverage for subcontracted work. The general contractors policy should respond to the collapsed wall, as they did not build the wall, it was subcontracted to another contractor.

    The language applicable is in Form CG 00 01 12/04 Edition

    Exlusions 2.

    I. “Property Damage” to “your work” arising our of it or any part of it and included in the “products-completed operations hazard”.

    This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a sub-contractor.

    We are seeing some carriers remove this wording if the proper risk transfer methods are not in place.

    • October 17, 2011 at 9:58 pm
      Former Status Quo says:
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      Jeff – most carriers are now using the 12/07 version of the CG 00 01 CGL form. Either way, the language is the same.

    • October 20, 2011 at 2:36 pm
      Not A Witch says:
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      ISO CG2294 & CG2295 close this exception on a designated or blanket basis. If coverage isn’t intended to be afforded to cover poor workmanship (and in a standard GL policy that is indeed the intent) then why should it cover poor workmanship that wasn’t even done by an employee of the insured?

      If you have access to FC&S there is an interesting write-up on this very topic.

  • October 17, 2011 at 4:00 pm
    David Grossbaum says:
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    can you say “buidler risk insurance”, your all missing the point, your not protecting your client correctly with out it.

  • October 18, 2011 at 11:29 am
    GL GURU says:
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    I don’t think the issue is the policy language but that the interpretation of the coverage is inconsistent across state lines. In my states I believe the damage caused by the collapsing wall would be covered but not the wall itself.

    However, the subcontractor exception is interesting because it does have coverage for subs but that is the exclusion. Do you even get there because faulty work is not an occurence. Too many people go to the exclusion when you need to go through the insuring agreement first. It all comes down to state interpretation of the occurence. The inconsistency hurts everyone. Insureds, owners, producers and insurers suffer. Well the attorneys do OK with billing but that is what they do so you can’t blame a tiger for its stripes.

    I wish they went a little further because the article caught my attention and just ended.

    Builders Risk is not the clear answer here because i am not sure if the building was put to intended use. Doesn’t it only cover the collapse during the construcution?

  • October 19, 2011 at 10:43 am
    Kevin J. Connolly says:
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    @David: had you been at the conference, you would have seen that after Finley lambasted the courts and insurance industry for balkanizing the law of insurance recovery, I presented some solutions for owners and developers, which centered on Builders Risk and Professional Liability coverage. The central problem is the Unholy Trinity of Occurrence, Property Damage, and Business Risk Exclusions that applies to liability coverage, and First Party coverage sidesteps these issues. Professional Liability coverage is important because (a) the design team usually catches some of the spears, whether in design or in CA and (b) designers are notoriously under-insured. The gyrations that the design team goes through to avoid subrogation claims are epic in scope and in their inefectiveness, which reflects their awareness that many developers do not waive subrogation against the design team. Depending on how the Builders Risk cover is written, I generally encourage owners and developers to waive subrogation unless the policy imposes a surcharge for that. Commercial Property Coverage for collapse during construction carries a 500% surcharge if the plicyholder has waived subrogation against the architect, structural or geotechnical engineers. For inland marine, your mileage may vary so read the friendly policy.
    The problem that led Finley to invoke the name of Karnak the Magnificent is the incoherence of the courts’ treatment of “occurrence.” You would think that a BANG either is, or is not, an occurrence. Just as an etrog is beautiful, smells good and tastes good, or it’s not an etrog any more. But in the hands of some courts, if an event causes damage to the contractor’s work, it is not an occurrence, but if it damages other work, then it is an occurrence.
    That’s fuzzy thinking. I like to turn right angles in my thinking. I would buy the idea that it’s an occurrence but there is no coverage because it’s either not covered in the first place (outside the description of covered property) or because it’s excluded. But it certainly is an occurrence. It might not be an _insured_ occurrence, but it’s an accidental loss with either a bang or repeated exposure to the same harmful conditions.



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