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 expressly excludes damage to your property, product, or work.
Restoration contractors need to understand that the products and completed operations limit do not change what is covered under your general liability policy. This limit is simply the bucket of money available to pay for occurrences arising from the contractor’s products and completed operations. The CGL policy pays for certain damages caused by an event that occurred during the policy period. Coverage comes from the policy in force when the occurrence happens, not necessarily from the policy when the work was done.
If the contractor’s property, product, and work are excluded, what does the CGL policy cover for contractors?
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 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 a 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.”
The CGL policy intends to cover the defective product or work but the damage resulting from the bad outcome. Courts call this damage “resulting damage.” Courts have held that the CGL policy coverage applies only to resulting damage caused by the insured’s’ defective work. Coverage does not apply to the cost incurred to repair and replace the contractor’s lousy work. The risk of replacing or repairing faulty materials or poor artistry has been considered a commercial risk 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 the 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 the property on which the contractor was performing operations.