Scope of Contractors' General Liability Insurance
Auto Owners Insurance Co. v. Newman, a 2008 case in the South Carolina Court of Appeals, involved a commercial general liability (CGL) insurance policy issued to a contractor. The subcontractor in the case installed stucco siding defectively, which allowed water to seep into the home and cause damage. Consequently, the owner sued the contractor for breach of contract, breach of warranty, and negligence. The court sided with the owner. The contractor’s insurance provider, Auto Owners Insurance Company, then asked a court to declare that their policy did not cover the damages assessed against the contractor. The lower court disagreed and found that the insurance company had to pay the judgment against the contractor.
The CGL policy at issue was a standard Insurance Services Office (ISO) form. The policy covered injury or damage from an occurrence - an accident or continuous exposure. Because the insurer did not define the term “accident”, the court said it was an unexpected happening that harmed a person without that person intending such harm. The court also noted that only damage to the work itself (the stucco siding) and resulting from faulty workmanship is excluded from the CGL policy. Repeated water intrusion caused damage beyond the stucco itself; it damaged the exterior sheathing and wooden framing. Thus, the court said the water intrusion was a continuing harm and met the definition of “occurrence.”
The court further explained that the “your work” exclusion did not apply. A “your work” exclusion means that the policy will not cover property damage to a contractor's own work. However, the court noted that the "your work" exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the contractor's behalf by the subcontractor.
Finally, the court stated that the CGL policy covered the stucco itself because the damaged substrate could not be fixed without removing the top layer. It seems that the carriers agree with the court’s findings or else they would change the policy forms.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Posted by Ryan McCabe at 3/10/2009 12:53 PM 
Categories: Insurance,Liability and Risk Management,Contractors
Categories: Insurance,Liability and Risk Management,Contractors
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