Defining Damage to 'Your Work"

By Bill Wilson

A contractor is denied CGL coverage after a building that he worked on is damaged by a rainstorm.

A contractor installs roof vents on a building that he first built 15 years ago. Although the contractor installs the vents properly, a severe rainstorm blows water through them and destroys about $15,000 worth of insulation and ceiling tiles.

The contractor’s insurer denies the claim on the basis that the contractor had built the building.

“This definitely does not fall within the intended scope of the exclusion, but does this exclusion still function?” the contractor’s agent asks. “The exclusion is intended to prevent shoddy workmanship. Should the insurer defend?”

If the water damage took place during the installation of the vents, the only commercial general liability policy exclusions that could apply would be j(5) and j(6). Exclusions j(5) and j(6) apply only to “that particular part…if the property damage arises out of those operations or if property must be restored, repaired or replaced because your work was incorrectly performed on it.”

In the latter exclusion, “your work” would only be the installation of the vents, not the construction of the building 15 years ago. It seems that neither j(5) and j(6) can apply because the property damage was not to that particular part. Instead, damage was to the insulation and ceiling tiles, which were not the particular part that was addressed by the contractors.

If the property damage took place after the vents had been installed, then the vent installation is within the products-completed operations hazard. While the entire building may be the contractor’s work from 15 years ago, it would be more reasonable to consider “your work” as the actual job just finished—the installation of the vents. It would be helpful to make this point with a work or documentation that shows the scope of the work.

Thus, to be excluded, the property damage must be to “your work”—which would be the vent installation—and it must arise out of it (again the vent installation). The fact that the contactor happened to have built the building should have no bearing on the matter. The intent of the your work exclusion is to avoid paying damages for work that damages itself, which is not what happened here.

This is similar to a homeowners claim question that Big “I” Virtual University experts fielded a few years ago.

The homeowners found a great deal on some used office furniture that they used to furnish their house. Following a loss, the adjuster tried to use the business property sublimit, which applied to property used “at any time for any business purpose.” His logic was that there was no time limit and the property was once used by a business.

The same argument could be made for any furniture—since it was sold by a business, one could say it had been used for a business purpose. In this case, a separation of years since the original work had been performed should be enough, so it’s rather silly that someone would try to impose the exclusion for this.

http://www.iamagazine.com/NewsViews/2012/August_30/Forms-Substance.aspx