Your Work Exclusion under Review
May 4, 2015
A condominium association brought a declaratory judgment action against liability insurers for the condo's developer, seeking coverage for claims of negligence and negligent supervision in the construction of the condo units. This case is Cogswell Farm Condominium Association v. Tower Group, 2015 WL 149956.
Lemery was responsible for the construction of 24 residential condominium units between 2000 and 2003. In 2009, Cogswell sued Lemery and others, alleging negligence and negligent supervision in the construction of the units, specifically defective construction of weather barrier components; the defective weather barriers then led to water leak damage to the units.
Tower issued general liability policies to Lemery during these years. After Cogswell sued Lemery, Cogswell filed a petition for declaratory judgment against Tower, seeking a declaration that its claims against Lemery were covered under the Tower policies. The trial court concluded that uncertainty existed regarding whether property damage occurred during the policy periods and so, it ordered that an evidentiary hearing be held to determine whether the negligence claim could proceed.
The witness at the hearing opined that the defects in the weather barrier caused almost immediate water damage and that the damage went undetected for years. Following this hearing, Cogswell argued that its claims amounted to an occurrence and that the exclusions in the policies did not apply to resulting damage to nondefective exterior and interior finishes that directly resulted from the water infiltration. The insurer countered that the claims did not trigger coverage, but even if they did, exclusions j1 and j6 precluded coverage. The trial court decided that the insurer, Tower, did not have a duty to defend or have an obligation to pay Cogswell if Cogswell was successful in its underlying lawsuit against Lemery. This appeal followed.
The Supreme Court of New Hampshire noted that on appeal, Cogswell contends that the trial court erred in determining that exclusion j1 operated to bar coverage for all the units at all times. Cogswell said that exclusion j1 excludes coverage for property damage to property owned by Lemery while he owned that property prior to sale to the unit owners, but that after the sale, the exclusion did not apply because Lemery no longer owned the property. The Supreme Court agreed with Cogswell.
The next argument put forth by Cogswell was that the trial court erred in finding the exclusion j6 applied because Cogswell was not contending that Tower was obligated to pay for costs associated with repairing the defective weather barriers. Rather, Cogswell argued that the damage for which coverage is claimed is the damage to the nondefective work that was caused by the defectively constructed weather barriers. Tower countered that because Lemery was the general contractor responsible for the construction of the units, exclusion j6 applies to preclude coverage for all damage caused by Lemery's defective work on the units that was not defective. Tower claimed that Cogswell's interpretation of the exclusion would undermine the purpose of the general liability policy in that such an interpretation would make the policy a performance bond.
The court said that the exclusion could be interpreted in two ways. One way is that the exclusion applies to all damage to the insured's work caused by the defective work. The other interpretation is that the exclusion applies only to those parts of the property on which the allegedly defective work was done. The first interpretation would prevent coverage for all damage resulting from Lemery's defective work, including damage to the nondefective parts of the condo units. The second interpretation would preclude coverage for damage to the defective weather barriers, but allow coverage for damage to the nondefective parts of the units that was caused by the defective weather barriers.
Because the exclusion is subject to more than one reasonable interpretation in the opinion of the court, the court found the exclusion to be ambiguous. Therefore, exclusion j6 was held to apply to property damage to the defectively constructed portions of the units, but was held not to apply to damage to those portions of the units that were not defectively constructed by Lemery, but were damaged as a result of the defective work.
The ruling of the trial court was reversed and remanded.
Editor's Note: The Supreme Court of New Hampshire reviews the your work exclusion in the CGL form and finds that the exclusion is ambiguous and so, it does not apply to damage done that resulted from defective work. The defective work was not covered but resulting damage from that defective work was covered.