Commercial General Liability (CGL) policies typically include a “your work” exclusion, excluding coverage for “’property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” These CGL policies define “your work,” in pertinent part, as “work or operations performed by you or on your behalf.” (emphasis added). As the recent case of Mid-Continent Cas. Co. v. JWN Construction, Inc., 2018 U.S. Dist. LEXIS 20529 (S.D. Fla. 2018) reminds us, the “your work” exclusion can serve to eliminate coverage for a general contractor, even when property damage is caused by a subcontractor.
In JWN Construction, Inc., a residential homeowner discovered water intrusion and related property damage and sued the general contractor, JWN, for damages. In the ensuing declaratory judgment action filed by JWN’s CGL carrier, the carrier argued it owed no duty to defend or indemnify JWN in the underlying lawsuit under the “your work” exclusion, notwithstanding the fact that the home was actually constructed by a subcontractor of JWN. The Court in JWN Construction, Inc. agreed with the carrier, granting summary judgment in the carrier’s favor and specifically holding that the “your work” exclusion applied to bar coverage for work performed by JWN’s subcontractor. In so doing, the Court explained as follows:
If work was performed by JWN or on JWN’s behalf – here by a subcontractor – then the “your work” exclusion applies. Historically, insurers could be liable under commercial general liability policies resembling the policy in question for certain types of damages caused by subcontractors, if the contract lacked specificity on this topic. Nonetheless, insurers do possess the right to define their coverage as excluding damages arising out of a subcontractor’s defective work by eliminating subcontractor’s exceptions from the policy.An insurer is only liable for a subcontractor’s defective work when the “your work” exclusion does not eliminate coverage for work performed by a subcontractor. Here, the “your work” exclusion also excludes work performed by a subcontractor. In conclusion, the insurance policy in this case excluded coverage for work performed not only by JWN, but also by JWN’s subcontractors. . .
Id. at *11-12 (citations omitted; available upon request).
As the Court in JWN Construction, Inc. suggests, the general contractor’s lack of coverage could have been avoided had the CGL policy’s “your work” exclusion included what is known as a “subcontractor exception.” Under this exception, the “your work” exclusion “does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” Without this exception in their CGL policies, general contractors may face the horrifying prospect of being sued for substantial damages related to latent defects caused by their subcontractors without any collectible CGL coverage.
To avoid this scenario, general contractors should consult with their insurance brokers and carefully review their CGL policy to ensure the “your work” exclusion includes a subcontractor exception. This should include a careful review of all endorsements as certain policy endorsements may eliminate the subcontractor exception by expressly excluding coverage for work performed by a subcontractor. If the “your work” exclusion in the policy does not include a subcontractor exception, general contractors should strongly consider purchasing the additional coverage afforded by the exception so as to avoid the coverage dilemma faced by the general contractor in JWN Construction, Inc.
If you have any questions about this topic, please do not hesitate to reach out to a member of CSK’s Construction Group.