Do CGL Policies Cover Construction Defect Claims?Jul 25, 2023
An article by Noelle McCall, CIC, CRM, CISR
The question comes up from time to time asking if construction defect claims are covered under CGL policies. The answer (like the answer to many liability insurance questions) is – it depends! This is one reason why I am fascinated by liability insurance. Generally speaking, property insurance is black and white, while liability insurance is grey.
CGL policies are not designed to cover a named insured’s faulty or defective work. The ISO main General Liability coverage for CG 00 01 includes Exclusion I, which excludes coverage for:
“"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.”
Note the exception to the exclusion “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”
See below for a link to IRMI’s excellent article Back to the Exclusions—The "Subcontractor" Exception that discusses several court cases and the courts’ findings on who qualified as a “subcontractor” with respect to construction defect claims for subcontractor’s completed operations work on behalf of named insureds.
Some key points of the article are below:
- ISO coverage form CG 00 01 04 13 can include completed operations coverage for construction defect claims with regards to work performed by subcontractors.
- The court found that the definition of "your work" in the policy includes materials, parts, or equipment furnished as part of it.
- Therefore, in the example given, the court defined “subcontractors” to include a named insured’s subcontractors and suppliers.
Note - inspectors would not be covered, as they would only be inspecting the work, and would not be doing the work or supplying materials or equipment in association with the work.
To go along with this topic, see below for a chart that explains what can be covered.