Construction Today - Volume 16, Issue 2 - 137
IN THIS SECTION
The Core Companies
courts generally find that defective work is not an "accident" because
the contractor intended to perform its work or intended to hire subcontractors to perform that work, and problems with defective work
are the natural and foreseen consequences of not performing that
Sometimes, if the only damages are to the defective work, courts
find that while an "accident" occurred (the contractor did not intend
to perform the work incorrectly), the cost to replace defective work
is not covered because defective work is not considered "property
damage" as the term is used in the CGL policy. Again, CGL policies
generally only cover losses resulting from or caused by "bodily
injury" or "property damage." While most courts hold that "property
damage" has occurred if property or aspects of the project other than
the contractor's work product are harmed by the defective construction or defective materials, if the only damages sustained are the cost
to repair or replace the defective work, and there are no damages to
other aspects of the project or other property, the insured has not
caused any "property damage," which is required to trigger coverage
under the CGL policy.
Courts who hold that defective work is an occurrence or "accident"
under the CGL policy, sometimes deny coverage for some or all of the
claimed damages because, according to those courts, the damages did
not result from "property damage" under the CGL policy.
Recently, some courts have found a contractor's CGL policy did cover
the cost to replace defective work even though the problematic work
itself was not "property damage." This is because to access and replace
the covered "property damage" at issue in those cases, the contractor
would necessarily have to remove and replace the defective work. For
example, in one case, a defectively installed balcony was a covered loss
because in order to repair covered water damage to a garage (caused
by the defective balcony), the balcony would have to be rebuilt.
Most CGL policies include a provision that excludes coverage for
damage to the contractor's "work," leading some courts to hold that
the cost to replace defective work of an insured contractor can never
be a covered loss under a CGL policy. Many CGL policies, however,
assert that coverage for the cost to replace defective work by a subcontractor is not excluded under the policy. This can lead to coverage
for the cost to replace the work - if the work was performed by subcontractors - assuming the court believes that a sufficient "accident"
and "property damage" has occurred. Notably, insurers in some states
have taken steps to eliminate this "subcontractor exception" by supplemental endorsement.
Owners are becoming increasingly aware of the law regarding insurance coverage under CGL policies for construction defect claims.
Because the law in this area can be inconsistent and varies among
states, owners sometimes seek protection through other means such
as warranty and maintenance bonds. After work has been per-
Core Companies immerses itself in the communities in which it builds.
Cameratta Companies p.138
goes above and beyond
for its customers.
Milrom Cos. LLC
The Bozzuto Group
Dellbrook | JKS - Genesis House
RL Baxter Building Corp.
Allen Harrison Co.
The Core Companies
163 Walsh Construction
166 Live Oak Contracting
formed, in the face of a defect claim, some
owners' attorneys have tried to make claims
on the contractors' performance bonds even
though it is generally understood by contractors and their sureties that obligations
under a performance bond cease when the
project is completed. To adequately gauge
risk in this area and to know how to respond
in the face of a defect claim, contractors
should be aware of how their state courts
have interpreted the standard CGL policy by
discussing the matter with their counsel or
Jeremy P. Brummond practices in the litigation department at Lewis Rice in St.
Louis, Mo., with a focus on engineering and construction. He can be reached at
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