The debate continues on whether a subcontractor’s faulty work constitutes property iStock_000015701146XSmalldamage and an occurrence such that the insurer must cover the claim.  The most recent court to weigh in on this issue is the New Jersey appellate court (one step down from the New Jersey Supreme Court) in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC.

In this case, the condominium association sued the general contractor, who also acted as the developer, and subcontractors for faulty workmanship.  The condominium association also sued the insurer for the general contractor, demanding payment of consequential damages caused by a subcontractor’s faulty work.  The trial court granted summary judgment to the insurer, holding that the subcontractor’s faulty work was not property damage and thus not an occurrence under the Commercial General Liability (CGL) insurance policy, so no coverage.

The appellate court reversed the trial court’s decision, finding that the claims for consequential damages caused by faulty workmanship constituted property damage and an occurrence as defined in the policy.  This was a shift from earlier opinions in New Jersey.

The CGL policy analyzed in this case was the 1986 version of the CGL, while earlier opinions had analyzed the 1973 version.  The 1986 version contains an exception to the “your work” exclusion for work of subcontractors. (I know, confusing)  This means that the exclusion that applies to “your work” is excepted or not applied to subcontractors’ work. The court found that the exception of the subcontractor from the “your work” exclusion meant that the insurance policy must cover the consequential damages caused by the subcontractor’s faulty work.

One question that I have about the underlying project is whether anyone gave any thought to using a 1973 versus a 1986 CGL policy to cover the work.  Did the general contractor’s insurance agent mention that the 1986 policy language may provide broader coverage for the subcontractor’s work?

The same could be true of your projects.  Are you requiring your contractors or subcontractors to provide a certain year of ISO form?  Are you asking for an “additional insured” endorsement for completed operations under CG 20 37? If so, are you demanding a particular year, such as the 2001, 2004 or 2013?  Do you have the infrastructure in place to confirm that the proper form is being provided?

Take Away: Insurance policy language does matter.  And, it changes over the years.  Do you know what your policy provides?  Are you checking to see what policy language your subcontractors are providing?  These are all very important questions and whether you have coverage may be up for debate.