A Commercial General Liability (CGL) insurer does not typically have liability for property damage to the structure being constructed. Instead, coverage usually only applies to other property damaged by the work. In the recent lawsuit Lagestee-Mulder, Inc. v. Consolidated Insurance Co., the contractor found out the hard way that he had no coverage when the owner sued for construction defects.

In this case, the general contractor was named as an additional insured on a commercial general liability insurance policy associated with the project and was covered for sums for which it became legally obligated to pay because of an occurrence. After construction, the owner sued the general contractor, alleging that the general contractor breached the construction contract by failing to properly perform and failing to provide labor and products free of defects. The owner’s complaint did not specify whether the damages sustained were to the building under construction or other property damaged by the defects in the construction. Because of the vague nature of the complaint, the insurer claimed that there was no coverage because the CGL policy did not cover damage to the work itself.

The general contractor sued, arguing that the insurer, at a minimum, had a duty to defend the general contractor against the claims, even if the insurer was not obligated to pay any claims arising from the lawsuit. The insurer countered that the mere possibility that covered damages occurred does not trigger a duty to defend.

The federal court agreed with the insurer, finding that the lawsuit must contain explicitly factual allegations that potentially fall within coverage. The owner’s vague and general allegations of damages were not occurrences under the insurance policy and did not trigger coverage.

Keep in mind that this case was decided under Illinois law and Nebraska or Iowa courts may rule differently. But, it still provides a good lesson for contractors that think once they are named as an additional insured, they will have coverage no matter what.