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#37:  The GC's Liabiity Insurance: Is Faulty Workmanship Ever Covered?

1/11/2016

3 Comments

 
When a contractor performs shoddy work, it is liable to the owner not only for (a) the cost of repairing or replacing the defective work, but for consequential damages to other property, including (b) the cost of repairing or replacing nondefective work already performed by the contractor, and (c) the cost of repairing or replacing other property of the owner that was never within the contractor’s scope of work.  In a previous blog, I noted that a contractor’s Commercial General Liability insurance policy clearly covers (c), and suggested that New Hampshire might follow the trend elsewhere by holding (b) to be covered.  But is there ever coverage for (a)?

The general rule is that “the commercial general liability policy covers claims for property damage caused by defective work, but not claims for repair of the defective work itself.”  Capstone Bldg. Corp. v. American Motorists Ins. Co., 308 Conn. 760, 67 A.3d 961, 982 (2013). Some courts reach this conclusion by holding that shoddy work is not “property damage,”  limiting that phrase to "property that is nondefective, and to damage beyond mere faulty workmanship.”  Taylor Morrison Services, Inc. v. Hdi-Gerling America Insurance Co., 293 Ga. 456, 746 S.E.2d 587, 591 (Ga. 2013).  Others, including New Hampshire, get there by holding that shoddy work is not a covered "occurrence," limiting coverage to "negligent construction that resulted in an occurrence, rather than an occurrence of negligent construction."  High Country Associates v. New Hampshire Ins. Co., 139 N.H. 39, 45 (1994).

But what if the poor workmanship in question must be replaced in order to repair or replace other property which is covered?  In that scenario, must the insurer pay to fix the shoddy work?  The answer is: maybe.

Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (11th Cir. 2015), decided that the insurer must pay.  The plaintiffs were homeowners who were assigned their general contractor’s CGL policy after a number of construction defects were discovered, including “incorrect construction of a balcony, which allowed water to seep into the ceilings and walls of the garage leading to wood rot, caused property damage to the garage.”  Id. at 1244.  The court decided that “repairing the balcony was part of the cost of repairing the garage.”  Id. at 1251.

A similar decision is Village at Deer Creek Homeowners Association, Inc. v. Mid-Continent Cas. Co., 432 S.W.3d 231 (Mo.App. 2014).  In that case, components of a defectively installed exterior cladding system were damaged by water intrusion, and removal of some or all of the exterior cladding system was necessary in order to repair water intrusion damage caused behind the walls.  The court decided, id. at 243: “Once defective construction causes damage, the cost to repair the damage is covered ‘property damage.’  That cost to repair damage may include the cost to replace the defective construction if it too has been damaged or must be removed to access other damaged areas.”

In Lennar Corp. v. Markel American Insurance Co., 413 S.W.3d 750 (Tex. 2013), the Texas Supreme Court found coverage for the cost of removing EIFS, conceded to be a defective product, in order to locate covered water damage to other parts of the structure. 

Decisions like these suggest a “back door” way to pass the costs of repairing or replacing defective work onto the insurer when other property that was damaged as a result of defective work cannot be addressed without also addressing the defective work itself.  Thus far no New Hampshire reported case has considered the question whether covered repair costs for consequential damages must be teased apart from the costs of repairing the defective work itself, or whether both costs can be passed on to the insurer when the defective work must be addressed in order to fix the consequential damages.

Lawyers love unsettled questions; it gives us a chance to be creative.  On this one, I'd rather have the carrier's side.

3 Comments
Dave Weilder link
5/18/2023 06:23:48 am

Dear NH Construction Law,

I recently read your blog post titled "Is Faulty Workmanship Ever Covered by the General Contractor's Liability Insurance?" and wanted to express my appreciation for shedding light on this complex and important topic. As someone involved in the construction industry, understanding the nuances of insurance coverage for faulty workmanship is crucial.

Your article provided a comprehensive overview of the challenges contractors face when it comes to insurance coverage for faulty workmanship. I found your analysis of the typical provisions found in general liability insurance policies and the limitations they impose on coverage to be insightful. It is essential for contractors to be aware of the potential gaps in coverage and the risks they may face if faulty workmanship claims arise.

Your explanation of the various legal precedents and court interpretations surrounding coverage for faulty workmanship helped clarify the complexities of the issue. It's evident that insurance coverage in such cases can vary depending on jurisdiction and the specific policy language. Your article serves as a valuable resource for contractors seeking a better understanding of their rights and potential liabilities.

I also appreciated the practical advice you provided for contractors to mitigate the risks associated with faulty workmanship claims. Your recommendations on implementing quality control measures, maintaining detailed documentation, and exploring additional insurance options were sound strategies to protect contractors' interests and minimize potential financial losses.

Furthermore, your blog post addressed the importance of engaging with knowledgeable insurance professionals and seeking legal advice to navigate the complexities of insurance coverage for faulty workmanship. This emphasis on professional guidance highlights the significance of informed decision-making and proactive risk management in the construction industry.

Thank you for sharing your expertise and providing clarity on a topic that can often be confusing and challenging for contractors. Your blog post serves as a valuable resource for construction professionals seeking to better understand the nuances of insurance coverage for faulty workmanship.

I look forward to reading more informative and insightful articles from your blog in the future.

Reply
Dave Hinson link
5/28/2023 03:39:07 am

I recently came across your blog post titled "The GC's Liability Insurance: Is Faulty Workmanship Ever Covered?" and I want to commend you for addressing an important and often misunderstood topic in the construction industry.

Your article provides valuable insights into the complexities of liability insurance coverage for faulty workmanship. You outline the general principles and limitations of coverage, shedding light on the factors that determine whether a claim related to faulty workmanship will be covered by the general contractor's insurance policy.

I appreciate how you explain the distinction between "occurrence-based" and "claims-made" policies and their implications for coverage. Your discussion of the various policy exclusions and endorsements that may impact coverage for faulty workmanship helps contractors and stakeholders better understand the potential limitations and risks involved.

The examples and case studies you provide further illustrate the challenges and nuances in navigating insurance coverage for faulty workmanship claims. By highlighting these real-world scenarios, you help readers grasp the practical implications and potential outcomes when dealing with such insurance claims.

One suggestion I would like to offer is to explore the topic of risk mitigation strategies for contractors when it comes to faulty workmanship. While insurance coverage is an essential aspect, it would be valuable to discuss proactive steps that contractors can take to minimize the occurrence of faulty workmanship, such as implementing quality control processes, conducting thorough inspections, and fostering a culture of accountability and craftsmanship.

Additionally, providing resources or references to relevant legal precedents or industry guidelines would further enhance the article's value to readers. This would empower them with additional tools and references to navigate the intricacies of liability insurance and ensure they are making informed decisions regarding their coverage.

Overall, your article provides valuable insights into the complex topic of liability insurance coverage for faulty workmanship in the construction industry. By addressing the nuances and limitations of coverage, you contribute to a better understanding of the associated risks and help contractors make more informed decisions.

Thank you for sharing such informative content on NH Construction Law, and I look forward to reading more of your insightful articles in the future.

Reply
Jacoby Johnson link
6/1/2023 11:35:11 am

I recently read your blog post titled "The GC's Liability Insurance: Is Faulty Workmanship Ever Covered?" on NH Construction Law's website, and I found it to be an engaging and thought-provoking read. The topic of insurance coverage for faulty workmanship is highly relevant in the construction industry, and your insights shed light on an important aspect that many contractors and general contractors often grapple with.

Your explanation of the complexities surrounding insurance coverage for faulty workmanship was comprehensive and provided a clear understanding of the challenges involved. It is indeed a complex issue, as different insurance policies may have varying exclusions and endorsements that can impact the coverage available to contractors.

Your discussion of the various types of insurance policies, such as Commercial General Liability (CGL) insurance and Builder's Risk insurance, and their potential limitations in covering faulty workmanship, was particularly informative. Understanding the nuances of these policies can help contractors make informed decisions and manage their risk effectively.

To further enrich your article, I would like to suggest a couple of points:

Alternative risk management strategies: While insurance is an essential component of risk management, it would be beneficial to explore alternative strategies that contractors can employ to mitigate the risks associated with faulty workmanship. For example, emphasizing the importance of implementing quality control processes, conducting regular inspections, and adhering to industry standards and best practices can help reduce the likelihood of errors and minimize the need for insurance claims.

Contractual agreements and indemnification: Discussing the role of contractual agreements and indemnification provisions in managing liability for faulty workmanship can be valuable. Highlighting the significance of well-drafted contracts, including clear allocation of responsibilities and indemnification clauses, can help contractors protect their interests and potentially transfer some of the liability to other parties involved in the project.

Case studies and examples: Including real-life case studies or examples of situations where insurance coverage for faulty workmanship was disputed or successfully claimed can provide practical insights for contractors. By examining specific scenarios and the outcomes, readers can better understand the complexities and potential outcomes when it comes to insurance coverage in the context of faulty workmanship.

In conclusion, your article on the liability insurance for faulty workmanship in the construction industry provides valuable information for contractors and general contractors navigating this complex subject. By exploring the limitations of insurance coverage, explaining different policy types, and discussing the challenges contractors face, you have offered important insights that can help professionals make more informed decisions and manage their risks effectively.

Thank you for sharing your expertise and contributing to the knowledge base of the construction industry. I look forward to reading more informative and thought-provoking content from NH Construction Law in the future.

Reply



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