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To what extent may defective workmanship of a contractor be covered under a commercial general liability (CGL) policy. Contractors have occasionally argued successfully that property damage or personal injury was imminent as a result of their defective work, and that the repair to the work must be deemed to be insured damage. More often that not, these kinds of claims are denied.

In Erie Insurance Property & Casualty Co. v. Pioneer Home Improvement, Inc., No. 11278000 (W.Va. Dec 10, 1999), the Supreme Court of West Virginia reviewed the question of whether defective workmanship could be a covered loss under the policy. A homeowner sued the insured general contractor for defective performance. The general contractor tendered the claim to its insurance company to defend. The insurer declined coverage on the basis there had been no “occurrence” causing property damage. Second, it argued that an exclusion to the policy negated any potential coverage. The policy expressly excluded coverage for “that particular part of the any property that must be restored, repaired or replaced because your work was faulty.”

In evaluating the language of the policy, the court explained that a CGL policy does not insure against “damages in an action for breach of contract and faulty workmanship on a project where the damages are the cost of correcting the work itself.” Instead, the policy is to cover liability arising out of personal injury or property damage to others caused by the insured’s conduct. This is how the court explained it:

“Pioneer [the contractor] purchased a CGL policy. These policies do not insure the work or workmanship which the contractor or builder performs. They are not performance bonds or builders’ risks policies. CGL policies, instead, insure personal injury or property damage arising out of the work. The ‘completed operations hazard’ coverage applies to collateral property damage or personal injury caused by an occurrence ‘arising out of your work that has been completed or abandoned.’”

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 2, No. 6 (Jun 2000).

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