Restoration Insurance: Your Work Exclusions
That project you just finished may not be covered by your insurance the way you think it is. This is because although the commercial general liability (CGL) policy may cover bodily injury or property damage to others resulting from your product or work, the policy specifically excludes damage to your property, product or work.
It is important for restoration contractors to understand that the products and completed operations limit does not change what is covered under you general liability policy. This limit is simply the bucket of money available to pay for occurrences arising out of the contractor’s products and completed operations. The CGL policy pays for certain damages caused by an occurrence that occur during the policy period. Coverage comes from the policy in force when the occurrence takes place; not necessarily from the policy in force when the work was done.
If the contractor’s property, product and work are excluded, what does the CGL policy cover for contractors?
Broadly speaking, the CGL policy is designed to cover bodily injury, property damage, or personal and advertising injury to others. If a contractor builds a wall and it falls on someone else’s car that would be property damage to others. Similarly, if the wall falls and injures a stranger walking down the street, that would be bodily injury to others. Both of these should be covered under the CGL policy. However, if the wall simply falls and the only damage is to the wall itself, then there is no property damage or bodily injury to others. The CGL policy specifically excludes: “J) that particular part of real property on which you or your subcontractor was performing operations, K) your product, and L) your work.”
What the CGL policy is intending to cover is not the defective product or work, but the damage resulting from the defective work. Courts call this damage “resulting damage.” Courts have held that the CGL policy coverage applies only to resulting damage caused by the defective work of the insured. Coverage does not apply to the cost incurred to repair and replace the contractor’s defective work. The risk of replacing or repairing defective materials or poor workmanship has been considered a commercial risk that is not passed onto a liability insurer.
Imagine that a particularly bad painter is hired to paint all of the walls in a hotel. All of the walls need to be repainted at a cost of $100,000. The painter also regularly spilled paint, causing $100,000 in damage to the carpets. The hotel feels like it is owed $200,000 for its damages and files a claim against the painter’s CGL policy. Assuming that the contractor was not intentionally painting the carpet, there should be coverage for the $100,000 in damage to the carpets because this damage resulted from the contractor’s work on the walls. However, the $100,000 in damage to the walls will be excluded as the contractor’s product, work, or that particular part of property on which the contractor was performing operations.