All posts by John J. Kozak, Esq.

John J. Kozak is a Partner in CSK’s Construction Group and practices in the Tampa office. Mr. Kozak defends contractors, developers, and design professionals in multi-million dollar claims stemming from the construction of large residential and commercial developments.  Mr. Kozak also practices in the areas of products liability, premises liability, and motor vehicle negligence and has over sixteen years of litigation experience in state and federal courts in multiple jurisdictions.
24APR 2018

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, please do not hesitate to contact Ryan Charlson, Esq., at 954-343-3919 or ryan.charlson@csklegal.com.

31JAN 2017

For a variety of reasons, additional insureds (and even named insureds) under commercial general liability policies will sometimes wait months, and even years, to tender the defense of a claim or lawsuit, incurring significant legal fees in the interim.  When the claim finally is tendered, a dispute often arises over who should pay the pre-tender defense costs.  Surprisingly, there is very little Florida legal authority specifically dealing with this issue.  However, the recent federal 11th Circuit Court of Appeals case of EmbroidMe.com, Inc. v. Travelers Property Casualty Co. of America, No. 14-10616, 2017 U.S. App. LEXIS 368 (11th Cir. Jan. 9, 2017), applying Florida law, addresses the issue head-on and provides CGL carriers with a large hammer in refusing to pay pre-tender fees.

In EmbroidMe.com, the named insured under a CGL policy issued by Travelers was sued in a federal district copyright infringement action.  Despite the existence of the Travelers policy, the insured, EmbroidMe, failed to notify Travelers of the lawsuit for over eighteen months, incurring over $400,000 in legal fees before finally tendering the claim to Travelers.  While Travelers agreed to defend the lawsuit under a reservation of rights, they refused to reimburse EmbroidMe for their pre-tender fees.

In the ensuing breach of contract action filed by EmbroidMe for reimbursement of the pre-tender fees, the United States District Court for the Southern District of Florida entered summary judgment in favor of Travelers.  In affirming the Southern District’s grant of summary judgment, the 11th Circuit relied on a standard conditions clause in the CGL policy providing that “no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Id. at *14 (emphasis in original).  The 11th Circuit also referenced a standard Supplementary Payments provision in the policy providing that Travelers would pay ”[a]ll reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or ‘suit’. . .” Id.  (emphasis in original).  Based on these provisions, the 11th Circuit reasoned that even the most unsophisticated of insureds “could not expect its insurer to reimburse it for attorney’s fees it unilaterally incurred unless the insured had first obtained [the insurer’s] permission to incur those expenses.” Id.

While the EmbroidMe.com case dealt with a named insured’s request for reimbursement of pre-tender fees, the rationale behind the decision could be applied with equal vigor to an additional insured’s demand for fee reimbursement insofar as “the rights of an additional insured can be no greater than those of the named insured.” Hartford, Ins. Co. v. BellSouth Telecomms., Inc., 824 So.2d 234,241 (Fla. 4th DCA 2002), citing Maxwell v. U.S. Fidelity & Guar. Co., 399 So.2d 1051,1056 (Fla. 1st DCA 1981).  Thus, under EmbroidMe.com, CGL carriers now have an even stronger argument in denying a named insured’s or additional insured’s request for reimbursement of pre-tender fees.