Insurance isn’t a warranty. It doesn’t replace faulty work or products, but it does cover the Bodily Injury (BI) and Property Damage (PD) caused by the faulty work or product. The exclusion of faulty work often referred to as “your work”.
One of the most contested provisions of the commercial general liability (CGL) policy is the provision excluding coverage for property damage to the insured’s completed work. In 1986 Insurance Services Office, Inc. (ISO), revised the standard CGL policy form to include an exception to this exclusion if a subcontractor performed the work for the insured. This revision has become heavily litigated.
Exclusion (l) states that the insurance policy does not apply to:
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
Real life example:
There was a plumber that installed a water filter for one of his clients. Water tasted great! 8 hours after the install and while the homeowner was away from home, the connection at the filter broke and flooded the house. $87,101 damage total. Wood floors, 1 month old custom cabinets, base boards, you get the picture.
The claimant contacts plumber’s insurance broker before calling her homeowners carrier and places the claim against the insured.
Adjuster goes out, determines that there was a lot of water and damage. He does not really investigate the cause just the damage. The in-house adjuster gets the file and denies the claim based on “your work” exclusion. Claimant gets this news directly from the adjuster verbally, before the adjuster even talks with the plumber to get “his” side of the story. Claimant is obviously freaking out.
Insurance agent calls to in-house adjuster to get the scoop, and finds that the loss is not covered because of “your work”.
Insurance agent suggests that “your work is not a peril, and that we were not filing the claim to recover the cost of “your work” we were filing the claim for damages caused by a leak”.
In the mean time the insured is now bald from stress and he decides that there is no way he can afford to cover this loss though he is informed that there is no basis for this denial at this point, since no one knows WHAT CAUSED THE LEAK! The plumber says it is clear that the connection failed at the pipe and filter point, despite the plumber use glue in the proper fittings, the connection just failed, and split.
Insurance agent calls the in-house adjuster again and asks the status of the claim and advised that adjuster was waiting to talk with the insured but that they would likely deny the claim as stated.
Insurance agents asks to speak to adjuster’s supervisor and suggests that the claim is covered in full for the damages done as a result of the leak. The plumber was not looking for the recovery of the $269 filter or the $79 installation fee, but intended to be covered for the $87,101 in damage. The check is in the mail.
Insurance agent also asks what could the original adjuster have been thinking, and the manager responded that 50% of the people he has seen over the years, misunderstands this “Your work” exclusion, and does not realize that it does not have anything to do with damage being covered or not, it only has to do with recovery of the cost of the labor or work that was done, that resulted in the claim. In this case they think they may have a product defect claim against the manufacturer of the pipe fitting. Long and short of it is that the”your work” exclusion does not limit the claimants recovery for damages. Think about it, what the heck would the policy cover, if it did not cover damage caused by the insureds work. This would be a great way for carrier to never pay a claim.
We realize that in this case there was no sub contractor, but that does not change anything. CGL policies are intended to cover property damage, not exclude damage that is a result of what our insureds do. The wording that this adjuster used was that the insured was “negligent”, but that still does not deny the claim, that covers the claim other than the cost to replace and install the filter.
If a mechanic replaces brake pads on a car and the car is involved in an accident because the brakes fail, the garage policy will still trigger and pay damages, it just will not pay to replace the pads again, (the car will obviously need more than pads).
Paperless Comment: CGL insurance policies have many standard provisions, but coverage is determined by the state law applicable to the policy.
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