Coverage for property damage resulting from faulty workmanship is an issue brought up many times before in the courts (see cover story on p. 14). Aside from the fact that the standard commercial general liability form has an exclusion that precludes coverage for property damage to the named insured’s own work, some courts focus not on the exclusion but on whether faulty workmanship can be considered an occurrence.
There is a widely accepted view that the named insured’s negligent work that damages his own work is not an insurable occurrence under a general liability policy because the consequences of negligent work are reasonably foreseeable—that is, not an accident. The reasoning here is that the insured should know what he is doing if he presents himself to a customer as a knowledgeable contractor, and the CGL form is not meant to be a warranty for the insured’s work.
However, there are two related items that do bring up some areas for discussion.
The first item deals with the insured making a mistake, such as demolishing the wrong building or cutting down trees on the wrong property. Some would say there is no accident, no occurrence here, since the insured intended the destruction and the damage was expected and intended by the insured. I don’t agree.
The actions of the insured certainly were deliberate, but the bottom line is that the insured damaged property that was not the intended target of his actions. The insured made a mistake, that is, a wrong action proceeding from faulty judgment or inadequate knowledge (according to the dictionary).
In my opinion, this is an accident on the part of the insured, or at the very least a reasonable interpretation of the word. Moreover, the expected or intended injury exclusion in the CGL form applies to damage expected or intended from the standpoint of the insured. Again, the insured may have intended to demolish a building or cut down a row of trees, but from his standpoint, did the insured intend to cause damage to the wrong property?
There is reasonable ambiguity in this instance, and thus the insured should get the benefit of the doubt.
The second item pertains to damage caused by a subcontractor. The CGL form defines the work of the named insured to include the work done by a subcontractor on behalf of the named insured.
Some courts have, therefore, taken to denying coverage for a property-damage claim against the named insured because the subcontractor did shoddy work. Since this equates with the work of the named insured, this meant that there was no occurrence on the part of the named insured.
The problem with that thinking is that an occurrence should be interpreted from the standpoint of the named insured. What named-insured contractor would hire a subcontractor knowing that the subcontractor would deliberately and intentionally do shoddy work?
Moreover, while the named-insured contractor may be held legally responsible for the actions of the subcontractor, the CGL form itself makes a distinction between work done by the named insured and work done by the subcontractor.
The “damage to your work” exclusion makes an exception for damage arising out of work performed by a subcontractor because the intent of the CGL form is to not deny coverage for the named insured because of the actions of another party. Just because the subcontractor performs faulty work is no reason to punish the innocent named insured contractor.
What do you think?