If you are a contractor and do not have the subcontractor exception to the “your work” exclusion, then you can find yourself in a very difficult position. Why? Because you may be sued for a construction defect associated with property damage caused by your subcontractor’s negligence and have no CGL coverage!!!! So, even though you would be looking to your CGL insurer to defend and indemnify you in the construction defect lawsuit, your CGL insurer is probably going to deny coverage all because you do not have the subcontractor exception to the “your work” exclusion. Without this exception to this exclusion (which is exclusion l in your CGL policy), property damage arising out of your work, particularly in the latent defect scenario discovered post-completion, is excluded from coverage. With the subcontractor exception, this exclusion does not apply if the damaged work or work in which damage arises was performed by a subcontractor. Hence you can see the immense value of ensuring the subcontractor exception is included.
This difficult scenario was illustrated in a case where a homebuilder was sued for leaky windows and extensive damage resulting from the leaky windows. The CGL carrier denied coverage and refused to defend the homebuilder. The homebuilder did not have the subcontractor exception to the “your work” exclusion. Without the subcontractor exception, the court agreed that there was no CGL coverage afforded to the homebuilder since the property damage arose out of the homebuilder’s work. Please do not let this happen to you if you are in the business of subcontracting scopes of work out to sub-trades so that you can avoid this painful outcome!
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.