Analysis brought to you by the experts at FC&S Online, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins. Question: Good Morning, I need to see if I can get your take on a Commercial General Liability claim related to work done by a subcontractor. My client hired the subcontractor in question to install water meters in an apartment complex. Some of the meter plumbing connections leaked causing resulting water damage to the building. My client attempted to get the subcontractor and their insurance carrier involved, but had no luck in getting them to step up and take care of the damages. We then submitted this to our client's General Liability policy. The carrier has taken the stance that our client has no legal liability or negligence in this matter and is unwilling to handle the resulting water damages to the property. We have requested that they assist our mutual client with the resulting property damages and then pursue the subcontractor for the damage payments. Currently, they are still taking the stance that our client was not negligent and thus they will not pay and subrogate. Our view is that our client did in fact hire the subcontractor and is responsible to make sure the work was done correctly and therefore does have culpability for the damages. Because the subcontractor's installation of the water meters resulted in property damage we would look to our client's carrier to assist with the claim and they are not following through and remain staunch there is no liability on our client that hired the subcontractor. If that is the case, I would think that our client's GL policy would never step in on a subcontractor claim where they caused resulting property damages. Would you be able to review this and give me your thoughts.  Thanks

— New York Subscriber

Answer: In this situation, the insurance carrier is likely relying on "Exclusion J" in the CGL form under Damage to Property, which excludes property damage to that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations. This exclusion, however, is often misunderstood. It is important to note the words "are performing operations" in the exclusion. Therefore, this exclusion only applies while the work is being performed, not after the work has been completed. Exclusion l under Damage To Your Work excludes property damage to the insured's work arising out of it or any part of it and included in the "products-completed operations". However, this exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the insured's behalf by a subcontractor. The work is clearly within the insured's products-completed operations hazard, was performed on behalf of the insured, and the water damage arose out of work performed on the insured's behalf by the subcontractors. Therefore, there should be coverage for the insured under the CGL form. Further, if the insurer is using the damage to property exclusions to deny coverage, the burden is on the insurer to establish the fact that the exclusions apply. For the insurer to simply state that coverage is excluded is not enough to settle the issue; the insurer must prove its case. See also: Construction insurance continues to see double-digit growth

Handyman: An employee or independent contractor?

Question: Our insured is an apartment house owner who recently hired a handyman to assist with the replacement of a cracked ceramic sink bowl in a bathroom. With the insured present and providing guidance, the handyman attempted to remove the sink bowl with various tools. Being unsuccessful, he climbed onto the base of the sink and attempted to kick the sink to dislodge the bowl. His leg went through the ceramic bowl, severely injuring his leg. The handyman has performed odd jobs for the insured for at least 20 years and was compensated by the job. At the end of each year, he was provided with the required 1099 form. The workers' compensation carrier, State Fund, has denied the claim, taking the position that the handyman was not an employee of our insured. The adjuster stated the claimant was not paid a wage, did not receive a W-2, and no withholdings were taken. The CGL carrier has denied the claim based on the workers comp and employee liability exclusion. The denial letter further stated that should a court deem the handyman an independent contractor and not an employee, the insurer would still deny the claim due to lack of negligence on our insured's part. What we have here is a denial by the workers comp carrier claiming the insured handyman is not an employee and a denial by the CGL carrier claiming the claimant is an employee. I would appreciate your thoughts on the conflicting opinions. If both companies prevail in denying the claim, how should this exposure be covered?

— New Jersey Subscriber

Answer: Based on the facts you describe, the handyman could not be considered an employee. He sounds like an independent contractor, but you should check with your state's workers' comp laws to see if the state recognizes the handyman as an employee just to be sure. Also, as for the general liability policy, again based on your description of the event, we do not see any negligence on the part of the insured. Now, if the insured instructed the handyman to climb on to the base of the sink, that could be negligence. But if the handyman decided to do that on his own, we would agree with the general liability insurer. The way this should be covered is through the handyman's own health care coverage. We do not see him as an employee of the insured, and we do not see negligence on the part of the insured, so workers' comp and general liability coverage through the insured is not there.

Written vs.  verbal subcontractor agreements

Question: An insurer recently denied coverage for a claim where property damage was caused by a subcontractor on a job site of our insured. The reason given by the insurer was that there was no written contract between the insured and the subcontractor; there was an oral agreement. Is the insurer correct?

— Michigan Subscriber

Answer: No, there is no need for a written contract. When the CGL form deals with the work of the named insured, it defines that as work or operations performed by the named insured or on behalf of the named insured. There is no requirement for a written contract in the standard CGL form.

Performance bond guarantees completed work

Question: Our client is a municipality and has contracted with a builder to construct a service center. At the time of the contract award, the contractor presented evidence of a builders risk policy, a payment bond, and a performance bond. Halfway through the project, (50% complete and the city had not accepted any part of the project), a lightning strike caught the building on fire, and it was destroyed. At the time of the loss, it was discovered that the contractor had allowed the builders risk policy to lapse. The contractor did not have sufficient assets to complete the project in the absence of the builders risk coverage and abandoned the project. Would the provider of the performance bond step in to complete the project under the terms of the contract, including the 50% of the structure that was destroyed by the fire but not insured, since the builders risk had lapsed?

— Anonymous

Answer: If builders risk coverage is required by the contract, and given that a performance bond guarantees completion of the work as outlined in the contract, a surety would be responsible for all of the rebuilding costs in this situation. The bond guarantees performance as stated in the contract, and the contract requires builders risk insurance. Keep in mind that the surety is responsible only for the amount of the contract costs that have been paid out by the owner. In other words, if the owner hadn't already paid the contractor for the final 50% of the work, that amount would not be paid by the surety. This situation is one reason that insurance professionals advocate that the owner control the builders risk policy but charge the premium back to the contractor, who is also insured on it. See also: 6 home renovations that can affect your insurance