Repair Work not Seen as Property Damage

The general contractor brought an action against the insurer seeking reimbursement under a subcontractor's commercial general liability policy. The reimbursement was for money spent repairing defective sewer pipes. This case is Palm Beach Grading, Inc. v. Nautilus Insurance Company, 2011 WL 2749669 (C.A.11, Fla. ).

 

This case arose from an insurance policy between Nautilus and a non-party, A-1 Underground Services. Palm Beach Grading served as the general contractor for a project and subcontracted with A-1 to construct water utilities, sanitary sewer utilities, and storm drainage. A-1 never completed the work and abandoned the project. Palm Beach then hired another subcontractor, RDMC, to complete the work.

 

The work that A-1 had completed proved to be defective. As a result, RDMC had to dig up, repair, and rebury certain sections of the sewer line. Repairing the defective sewer line required damaging other components of the project. Palm Beach alleges that, as a result, it incurred repair costs of $256,208. To recover those repair costs, Palm Beach sued A-1 and obtained a final judgment. Palm Beach then sued Nautilus to recover a portion of the final judgment under the terms of the insurance policy that Nautilus had issued to A-1.

 

The trial court ruled in favor of Nautilus and this appeal followed.

 

The circuit court, following Florida law, determined that the repair costs incurred by Palm Beach as a result of A-1's negligence were not covered under the general liability policy. The court said that the repair costs did not constitute property damage within the meaning of the policy. Referring to Florida Supreme Court rulings, the circuit court noted that there is a difference between a claim for the cost of repairing or removing defective work (which is not a claim for property damage) and a claim for the costs of repairing damage caused by the defective work (which is a claim for property damage).

 

So in this instance, the court continued, the problem with the claim is that the defective pipe did not cause damage independent of the repair and replacement of the pipe. For example, the pipes never burst, causing sinkholes or backups. The claim was solely for the costs of repairing and removing the defective pipe and this is not a claim for property damage.

 

The ruling of the district court was affirmed.

 

Editor's Note: In finding for the insurance company, the United States Court of Appeals, Eleventh Circuit, cited the difference between a claim for repairing defective work and a claim for repairing damage caused by that defective work. If there is no damage beyond the faulty work itself, the court said that there is no “property damage” within the meaning of the term in the CGL form. And with no property damage, the CGL form does not apply.

This premium content is locked for FC&S Coverage Interpretation Subscribers

Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.

  • Quality content from industry experts with over 60 years insurance experience, combined
  • Customizable alerts of changes in relevant policies and trends
  • Search and navigate Q&As to find answers to your specific questions
  • Filter by article, discussion, analysis and more to find the exact information you’re looking for
  • Continually updated to bring you the latest reports, trending topics, and coverage analysis