When cold and snowy winterweather finally blows itself out, and warm weather brings thebeginning of more construction projects, claims against contractorsfor construction defects are bound to arise. Defective constructionclaims are normal for an insured contractor and are usuallyaddressed under the contractor's commercial general liability (CGL)coverage form. Insurers will cover the claims or deny coveragebased on the language of the policy and the facts of theincident.

Most of the general liability policies have the “business risks”exclusions that are familiar to those in the insurance industry.The “damage to property” exclusions and the “damage to your work”exclusion are often used by insurers to deny claims of propertydamage alleged against contractors. Insurers also raise the issueof whether the required “occurrence” happened in order to denycoverage for a claim. However, another course of action issometimes taken to dispute coverage. Insurance industry personnelmay be unfamiliar with this position—that the claim made againstthe insured is one for breach of contract and therefore, a claimnot covered by the general liability policy that applies to tortclaims.

There is no question that the standard CGL form is meant toapply to tort claims against the insured and is not intended toapply to only breach-of-contract claims. The policy does offercoverage for contractual assumptions of liability under certaincircumstances, but that coverage does not readily extend tobreach-of-contract claims; the general liability policy is notmeant to be turned into a performance bond. Courts are on record asupholding this distinction in a variety of contexts; for example,Musgrove v. Southland Corporation, 898 F.2d 1041 (5th Cir.1990) and James v. Burlington Northern Santa Fe RailwayCompany, 2007 WL 2461685 (D.Ariz.).