New Hampshire is the first court of 2015 to weigh in on construction defect coverage issues. The case, Cogswell Farm Condominium Association v. Tower Group, involved a typical situation. Lemery Building Company was hired to build 24 residential condominium units. After construction, the condominium association sued the builder asserting that the weather barrier, including the water/ice shield, flashing, siding, and vapor barrier, was defectively constructed and resulted in damage to the units due to water leaks. The condominium association also sued Lemery’s insurer for a determination as to whether the builder’s Commercial General Liability (CGL) insurer had to provide coverage for the claim.
The trial court ruled against the condominium association, finding that the “your work” exclusion applied. The exclusion in the builder’s CGL policy provided that there was no coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”
On appeal, the condominium association argued that it was not seeking coverage for the poorly installed weather barrier, but only for the damage the poorly installed weather barrier caused to other portions of the property. The insurer argued that Lemery was the general contractor and the exclusion applies to preclude coverage for all damage caused by Lemery’s defective work.
The appellate court found that the exclusion could be interpreted two ways. The exclusion can be read broadly to exclude coverage for all damage to the insured’s work or more narrowly to exclude coverage only for those parts of the property on which the allegedly defective work was done. The narrow reading would preclude coverage for damage to the defective weather barriers, but allows coverage for damage to the non-defectively constructed parts of the condominium units that was caused by the weather barriers.
The court ultimately concluded that the insurance policy was ambiguous and must be interpreted to provide coverage. As such, the court ruled that the “your work” exclusion barred coverage for property damage to the weather barrier; however, the exclusion does not bar coverage for damage to those portions of the units that were not defectively constructed but were damaged as a result of the defective work.
This is another ruling that contractors will appreciate. But, the breadth of the “your work” exclusion is still being contested around country and how it will be resolved in your jurisdiction may still be unknown.