Filed Under:Claims, Education & Training

Never By Accident

Coverage Concerns for Building Trade Contractors

Contractors confront some perplexing insurance coverage problems in their daily business activities. Let’s explore a few common scenarios briefly and discuss if and when coverage applies to structures.

Product and Work Exclusions
When a contractor negotiates with another party to perform some work, the contractor may extend an express warranty that its construction materials and services will be provided in a reasonably workmanlike fashion. Even if the contractor does not express such a warranty, the mere act of holding himself or herself out as being able to do the work creates an implied warranty that the materials will be fit for their particular purpose(s), and that work will be performed in a competent, skillful manner.

The court rulings as to whether faulty workmanship constitutes an occurrence vary with the jurisdictions and the facts of the particular case, but there are three general interpretations:

  1. If the insured acts with the specific intent to cause some injury, harm, or damage, then there is no accident, no occurrence.
  2. If the act is intentional and results in injury or damage that is a natural and probable consequence of that act, then there is no accident, no occurrence. In other words, an accident is never present when a deliberate act is performed, unless some additional unexpected, independent, and unforeseen happening occurs that produces or brings about the result of injury or damage.
  3. If the insured acted with a specific intent, but did not intend to produce the specific damage that resulted, then there was an accident, an occurrence. In other words, the intentional act itself does not produce an occurrence; there has to be an intentional result also.

The important point to take from this information is that sweeping statements to the effect that any injury or damage caused by an intentional act is not an occurrence and is then excluded from coverage under a liability policy, are inaccurate. The availability of liability insurance coverage depends on the facts and circumstances of each incident and the particular jurisdiction in which the incident occurs.

The main thing to note about this definition is that it pertains to tangible property; that is, property that can be touched and is physical and material. A building is tangible property, a building plan is not; a computer is tangible property, the information in the computer is not; material sold by a contractor to a customer is tangible property, goodwill (or bad will) engendered by the sale is not. For property damage to occur, the property has to have an alteration in appearance, shape, color, or some other material dimension, and that can only occur in property that is tangible. Things like loss of income or loss of value—that is, purely economic loss—do not fit the definition of property damage.

‘That Particular Part’
The phrase “that particular part” is found in exclusion (j). This refers to damage to property in the current standard CGL form. The form excludes coverage for property damage to “that particular part of real property” on which the insured is performing operations; and excludes coverage for property damage to “that particular part of any property” that must be restored, repaired, or replaced because the named insured’s work was incorrectly performed on it. So, the question arises: what is the extent of “that particular part”?

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