Builders and Contractors Exchange
Weekly Bulletin: 19 Sept 2005
Commercial General Liability Insurance and Defective Work Claims
By: Stephanie Himel-Nelson
In the construction industry, defective work claims are often some of the most hotly contested legal issues. Frequently, contractors assume that Commercial General Liability (CGL) insurance can protect them from property damage claims caused by some defective work. Despite standardized policy language, coverage under a CGL policy is rarely as cut and dried as it may seem. Courts from state to state vary widely in their interpretation of whether "occurrences" arising from defective work are covered under CGL policies. Although the Virginia Supreme Court has never directly addressed this issue, a recent case in the U.S. Court of Appeals for the Fourth Circuit suggests that Virginia contractors cannot necessarily rely on coverage under their CGL policies to protect them from property damage claims arising from defective work.
In Travelers Indemnity Co. of America v. Miller Building Corp., No. 04-1536, 2005 WL 1690552 (4th Cir. July 20, 2005), Miller, a general contractor, had obtained a Commercial General Liability policy from Travelers. This policy obligated Travelers to indemnify Miller for bodily injury or property damage caused by an "occurrence." An "occurrence" was defined by the policy to be "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
Wal-Mart and I.B. Ventures, LLC hired Miller for site development work on two adjacent lots and to build a Wal-Mart store on one of the lots. Miller's site development work subcontractor allegedly used defective fill material that expanded and caused damage to buildings on both lots. Travelers then sought a declaratory judgment in federal court to determine coverage under Miller's CGL policy. The District Court held that the defective work claims were covered under the policy. Travelers appealed and the Fourth Circuit reversed and remanded the case. The Fourth Circuit determined that the CGL policy was intended to provide protection for accidents that caused injuries or property damage, not defective work. Rather, the court felt that Miller should have expected and planned for poor subcontractor workmanship. As a result, the Fourth Circuit ruled that the Miller subcontractor's defective work was not an "occurrence" triggering coverage under Miller's CGL policy. This case demonstrates that contractors should aware of the possible limitations of their CGL policies.
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.