When a general liability claim is a construction defect

Coverage Q&A: The insured allegedly damaged a subcontractor's rook work when installing heat tape.

Is there a difference between a construction defect claim and a CGL claim? (Photo: Shutterstock)

Every claim is different, and some insurance policies can be difficult to interpret for unique situations. FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry, makes it simple to find credible answers to your complicated coverage questions. Analysis brought to you by our FC&S experts. 

Editor’s Note: This week’s question deals with claims stemming from contracted work, and whether there is a difference between a construction defect claim and a commercial general liability (CGL) claim.

Question: A subcontractor (roofer) alleged that our insured, an electrician, damaged an installed roof by puncturing it with installation screws used to affix heat tape to the roof. As a result, the warranty for the specialty roofing material was voided. The heat tape was installed in May 2019, and the warranty issued was discovered in November 2019. A claim was filed with ‘Carrier A’ in January 2020. 

‘Carrier A’ accepted the claim but sent the following email because ‘Carrier B’ covered the insured effective July 1, 2019:

“This claim is considered a construction defect claim instead of a general liability claim (work and ongoing roof issue span over more than one policy period); therefore, this claim will need to be reported to the electrician’s current carrier. The defective installation would be from the date of heat tape installation to date when the defect was discovered.

In this case, the heat tape installation began May 20, 2019, and the electrician was notified of warranty issues with the roof approximately 2 months prior to reporting to ‘Carrier A’ (January). Carrier A’s policy ended on July 1, 2019.” 

Is there a difference between a general liability claim and a construction defect claim? Are we obligated to provide notice to Carrier B, even though the occurrence was during Carrier A’s coverage period?  

— Subscriber

Analysis: For many years, insurers have been faced with such claims, often requiring a judicial determination due to the uncertainty about coverage. The “Your Work” exclusion in CGL policies excludes claims arising out of the insured’s own defective or faulty work but leaves a coverage exception for subcontractor work performed on behalf of the contractor. The rationale behind the exclusion is that a contractor should not be covered for substandard work. Still, while a contractor can control its performance, it cannot necessarily control a subcontractor’s performance. The subcontractor exception forms the basis for construction defect claims. Yet, it is difficult to determine whether a claim will be recognized as such by the legislature of the state where the work was performed.

Answer: To learn the answer to this week’s coverage Q&A, please log into your FC&S Expert Coverage Interpretation account.

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