When an owner asserts a claim of negligent construction against a general contractor, the general contractor may seek to have its insurer provide a defense to the claims (i.e., pay for an attorney) under its commercial general liability (“CGL”) policy and, if the general contractor is found to have been negligent, to pay the judgment. As addressed in the recent case, Forrest Construction, Inc. v. The Cincinnati Insurance Co., 728 F. Supp. 2d 955 (M.D. Tenn. 2010), whether the insurer is obligated to provide coverage under a CGL policy will depend upon the specific allegations of negligence and whether the general contractor self-performed the allegedly negligent work.
In Forrest Construction, the general contractor commenced work on a residential home, but abandoned the project before finishing the work. The homeowner took over the project, discovered that the general contractor’s “work was not done in a workmanlike manner and was done negligently,” and asserted negligence claims against the general contractor.
The general contractor informed its insurer of the claim and requested that the insurer provide the general contractor a defense to the homeowner’s claims of negligence. The insurer denied the general contractor’s claim on the grounds that the complaint alleged that the general contractor negligently installed the foundation and that the CGL policy did not insure against defects in the general contractor’s own work. After incurring substantial attorneys’ fees in defending against the homeowner’s negligence claims, the general contractor filed suit against its insurer for breach of the terms of the CGL policy.
After reviewing the CGL policy in question and the negligence claims asserted by the homeowner against the general contractor, the United States District Court for the Middle District of Tennessee determined that the insurer should have paid for an attorney to defend the general contractor against the owner’s negligence claims.
The court began its analysis by restating the general law surrounding insurance policies; that is, an insurer must provide a defense to its insured “when the underlying complaint alleges damages that are within the risk covered by the insurance contract and for which there is a potential basis for recovery.” The court further observed that “any doubt as to whether the claimant has stated a cause of action within the coverage of the policy is resolved in favor of the insured.”
Generally, a CGL policy broadly identifies the scope of the policy’s coverage; then, identifies certain “exclusions” to the scope of the policy’s coverage; and, finally, identifies certain “exceptions” to those “exclusions.” In the instant case, the court found that the CGL policy in question excluded from coverage any damage to the general contractor’s work, commonly referred to as the “your work” exclusion. The “your work” exclusion serves to preclude a general contractor from recovering under its insurance policy for damage to its own work.
The court also found that, as an exception to the “your work” exclusion, the CGL policy provided coverage to the general contractor where the “damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” In other words, where the work was performed by a subcontractor (as distinguished from work self-performed by the general contractor), the CGL policy would provide the general contractor insurance coverage for damage to its own work.
In Forrest Construction, the court had to determine whether the CGL policy afforded the general contractor coverage under the subcontractor’s work exception to the “your work” exclusion. The court looked to the homeowner’s specific allegations of negligence. Specifically, the homeowner alleged that the general contractor had “recklessly constructed the foundation or recklessly caused to be constructed the foundation,” resulting in cracking to the foundation and damage to other parts of the house.
The insurer argued that the homeowner’s negligence claim fell within the “your work” exception to the CGL policy, as the homeowner alleged that the general contractor had constructed the foundation. Accordingly, the insurer reasoned that the CGL policy did not provide coverage to the general contractor for the homeowner’s negligence claims.
The court rejected the insurer’s argument, reasoning that, because the homeowner alleged that the general contractor may have “caused” the foundation to be constructed and because “the usual way a contractor would ‘cause’ certain work to be performed…is to hire a subcontractor,” the “your work” exclusion did not apply to the homeowner’s claims. The court held that, because the homeowner alleged that the general contractor may have subcontracted the foundation work, the “your work” exclusion did not apply and that the insurer was obligated to pay for the general contractor’s defense to the homeowner’s claims.
Forrest Construction is illustrative of the importance of understanding the coverage afforded by a contractor’s CGL policy. While a standard CGL policy will not ordinarily provide coverage for a contractor’s own defective work, depending upon the specific claim(s) asserted against the contractor, the insurer may be responsible for furnishing a defense to the contractor. After paying premiums to an insurer year-afteryear, the prudent contractor may wish to consider filing a claim under its CGL policy when faced with a defective construction claim.
About the Author: Katz & Stone, L.L.P, Attorneys at Law, 8230 Leesburg Pike, Suite 600, Vienna, VA 22182, 703-761-6179, info@katzandstone.com; http://www.KatzandStone.com. This is a nationally recognized construction law firm.
This article is published in ConstructionRisk.com Report, Vol. 13, No.6 (Jun 2011).
Copyright 2011, ConstructionRIsk.com, LLC.