Where a concrete subcontractor’s ready mix concrete was found to be defective, and its client- another contractor, refused to pay for it, the subcontractor put a lien on the project, and the parties sued each other over the payment dispute.  The subcontractor then asked its commercial general insurance (CGL) carrier to defend and indemnity it.  The carrier refused to do so – stating that this was a basic contract dispute and there was no claim for “property damage” which the policy defined as “physical injury to tangible property.” The trial court and appellate court agreed there was no insurance coverage.  Morgan Concrete Company v. Westfield Insurance Company, 2021 WL 755094 (U.S. District Court, GA 2021).

The specifications required concrete to withstand 5,000 psi.  When the subcontractor’s concrete failed to meet that psi requirement, the prime contractor directed it to provide a higher psi concrete. When the next concrete continued to fail to meet the psi requirements the prime refused to pay its subcontractor and litigation between them ensued.

Rather than replace the second-floor level slab that contained the defective concrete, the prime contractor and project owner decide to repair the slab.  It then proposed to the subcontractor to split the repair costs, which the subcontractor refused to do.  The subcontractor argued that its concrete was not defective but that any problems were caused by the prime contractor mishandling the concrete that was delivered to the project.

In reviewing the facts and law applicable to this case, the appellate court explained that the state Supreme Court previously held that the term “property damage’ means damage to property that was previously undamaged ‘and to damage beyond mere faulty workmanship.”  As a result, “there is no coverage for ‘liabilities for the repair or correction of he faulty workmanship of the insured.’”

In this case, the court found that there was no “property damage identified in the lawsuit other than to the product that the subcontractor provided”.  The policy in question, said the court, excluded from coverage “property damage” to a “product” that was “manufactured, sold, handled or distributed” by the Insured subcontractor.  That exclusion applied to the situation in this case.   Because the dispute between the concrete subcontractor and prime contractor involved only damage to the inferior concrete and economic losses for repairs necessitated by the defective product, the court held the insurance policy didn’t require the carrier to defend the suit against the subcontractor.


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 ConstructionRisk 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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 23, No. 4 (July 2021).

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