Faulty Workmanship and Completed Operations

My question has to do with faulty workmanship. I know that the CGL form covers the risk of defective work of subcontractors for completed operations, but does this apply to ongoing work? In this case, the building owner sues a general contractor for damage due to defective work of one of the subcontractors that results in damage to additional components of the building. The subcontractor negligently installed a foundation which then shifted, causing floor slabs to become uneven and damage to the wood flooring that was installed over the slabs. Is exclusion j(6) applicable here?

In connection with this, what defines when an insured's work is put to its intended purpose for purposes of triggering the completed operations coverage? Would the issuance of a temporary certificate of occupancy demonstrate that the work is completed?

North Carolina Subscriber

What defines when an insured's work is put to its intended use? Putting something to its intended use means that the work on the project is finished and the person for whom the work was intended is now using the site for what it was intended. For example, the contractor/insured builds a three story building with many office spaces, meant to house several different companies. The contractor finishes the first floor and the tenants move into the first floor even though the second and third floors are still being worked on by the contractor. The first floor is the part of the work that the insured contractor has completed since it has been put to its intended use. This way, the CGL policy makes a distinction between a completed operation (the first floor) and the rest of the ongoing project that still needs work (the second and third floors). This helps to prevent any misunderstanding or confusion if a loss to the first floor occurs and the insurer's adjuster were to say that the work is not a completed operation because the insured is still working at the job site.

As for a temporary certificate of occupancy, that does not necessarily mean the site has been put to its intended use. A temporary certificate means that the place may be ready for use and occupancy but has not yet been put to actual use. What you may want to look at if you are interested in completed operations is the other parts of the definition of products-completed operations hazard that is on the CGL form. Work is deemed completed at the earliest of the following times: when all of the work called for in the contract has been completed; when all of the work to be done at the job site has been completed if the contract calls for work at more than one job site; or when that part of the work done at a job site has been put to its intended use. If one of these circumstances is met, the insured's work is completed.

As for the question about faulty workmanship, the coverage for damage to work done by a subcontractor is present due to an exception to the damage to the named insured's work exclusion (exclusion l.) This is for completed operations; there is no such exception for ongoing operations. Using your incident, exclusion j(6), pertaining to property damage to that particular part of property that must be restored or repaired because of incorrectly performed work, prevents coverage for the foundation as long as the work is not included in the products/completed operations hazard definition, in other words, not a completed operation. Exclusion j(5) pertaining to property damage to that particular part of real property on which the named insured or any subcontractor is performing operations would also apply if the damage occurs during ongoing operations. If the foundation is a completed operation, the exception to exclusion l. would allow coverage for the property damage.

 

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