While the primary thrust of this discussion is liability insurance, it also delves into certain construction bonds (suretyship), and property insurance dealing with builders risk.Topics covered:

The liability insurance perspective

Work performed on behalf of the named insured

Work performed by a subcontractor

Subcontractor versus materialman

The surety bond perspective

Court cases

The property insurance perspective

Conclusion

The Liability Insurance Perspective

 From strictly a liability insurance perspective, the genesis of the issues over the meaning of the word “subcontractor” began in 1968 when the broad form property damage coverage endorsement, first introduced in the mid-1950s, was expanded to include coverage for completed operations. When this endorsement was incorporated into the 1986 standard ISO CGL coverage form, the focus of coverage with respect to completed operations was the exception to the “your work” exclusion (l).

 To fully understand the coverage intent, it is necessary to review the policy definition that is central to exclusion (l), and the exception to this exclusion. The definition of “your work” in the current ISO CGL form reads as follows:

“Your work” means:

Work or operations performed by you or on your behalf; and

Materials, parts, or equipment furnished in connection with such work or operations.

“Your work” includes: Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and, the providing of or failure to provide warnings or instructions.

 Exclusion (l) and its exception read as follows:

 This insurance does not apply to “property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

 Briefly, this exclusion (l) precludes coverage for property damage to the work of the named insured arising out of it or any part of it and included in the products-completed operations hazard. The exception provides coverage if the damaged work, or the work out of which the damage arises, was performed by a subcontractor on the named insured's behalf. The intent of this exclusion and exception is that, while damage caused by the named insured to its own work is excluded; coverage will apply for damage to work of the named insured if subcontractors did that work; and conversely, damage to subcontractor work is covered if the named insured is liable for that work. This significant coverage has been available since 1968.

 Under current standard CGL forms, some insurers maintain that construction work is not performed by a subcontractor when the named insured is a project owner, developer, construction manager, one of several multiple prime contractors, or some other entity that does not directly hire the subcontractor(s). Restated, they maintain that a subcontractor can only be hired by a general contractor; and therefore, it is the general contractor who is hired by a project owner or other persons or entities.

 Before delving further, it is important to note that this is not as fertile an area of dispute as it once was for at least two reasons.

 First, the exception to exclusion (l) can be nullified by one or two endorsements that were made available by ISO in 2001:

Exclusion — Damage To Work Performed By Subcontractors On Your Behalf, CG 22 94. This is a blanket endorsement used to exclude all liability to the insured's work arising out of work performed by subcontractors, regardless of who hired the subcontractor(s).

Exclusion — Damage To Work By Subcontractors On Your Behalf — Designated Sites Or Operations, CG 22 95. This endorsement is used on a more discretionary basis as it applies to specifically described projects. It is similar to CG 22 94 but only excludes the insured's liability to work arising out of work performed by subcontractors for the specified projects scheduled in the endorsement.

 By deleting the exception to the exclusion (l), these endorsements effectively eliminate the single most important coverage under which many construction defect claims were historically paid.

 Secondly, the exception to exclusion (l), if otherwise applicable, is only of importance where construction defects are considered property damage and/or an occurrence, for other than the o who performed the faulty work or used faulty materials. More simply stated, if a court were to hold that liability coverage applies from a construction defect after the work performed on behalf of the party seeking coverage has been completed, it will be the exception to CGL policy exclusion (l) that will dictate any applicable coverage. If, on the other hand, a court were to rule that there has been no property damage or occurrence, the exception to exclusion (l) will not apply, since there must first be property damage from an occurrence.

Work Performed on Behalf Of the Named Insured

 A glitch dealing with coverage by exception to exclusion (l) is that many insurers maintain that developers, owners, or construction managers do not hire subcontractors. Instead, they hire general contractors who, in turn, hire subcontractors. Under this approach, insurers can then maintain that the exception to exclusion (l) does not apply to developers, owners, or construction managers. This exception, instead, applies to the general contractor who hires the subcontractors.

 However, this kind of ploy ignores the intended application of the exception to exclusion (l), and alleviates the required complexity of interpreting contract wording that might affect this argument. This position also ignores the fact that even if a general contractor retains the services of a subcontractor on behalf of the owner/developer, the work is ultimately on behalf of the owner/developer. Arguments that some privity (i.e., direct contractual relationship) is required between, for example, a developer/owner and the party that performs the work, ignores the historical application of the coverage and imposes a requirement not evident in policy wording.

 Work Performed by A Subcontractor

 Insurers also argue that the foregoing position is reinforced by the definition of the products-completed operations hazard, which holds that “your work” will be deemed completed at the earliest of the following times: “. . . (3) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.” Insurers advocating this position, argue that, because this part of the definition differentiates between contractors and subcontractors, omission of the word “contractor” from the exception to exclusion (l) is intended to limit application of the exclusion to subcontractors.

 One of the problems with this approach to precluding coverage is the difficulty it poses to the process of risk management. A principal goal of risk management is the transfer of risk. In performing this function, the wording of the underlying contracts and its interaction with the insurance coverage to be used must be reviewed. This means being able to identify those areas where coverage will and will not apply, a process that is made extremely complex by insurers seeking to exclude coverage in the manner set forth in this article. In addition to the coverage issues raised, there is also a question as to how contract wording must be revised to address this challenge to coverage.

 Current wording in standard American Institute of Architect (AIA) documents, and nonstandard contracts, may contradict the insurer's position that work is not performed on behalf of an insured. For example, the owner/developer of a project is usually given the right to stop the contractor's work and make good any deficiencies. In determining coverage application, the owner/developer would need to analyze operations to determine if the initial work of subcontractors is excluded; while the work of the owner to correct alleged problems could be covered, depending on contract wording and who hired the contractor to make the repairs.

 Construction contracts often require that all subcontractors be approved by the owner/developer and that these contracts be assignable to the owner/developer in the event any contract is terminated. These contracts typically require that agreements between the contractor and subcontractor protect the rights of the owner/developer with respect to work performed by the subcontractors, and that the subcontractors have the same benefit of rights and remedies against the owner/developer as the contractor. These contract requirements make a coverage determination more complex, given the strategy taken by insurers discussed in this article.

 Furthermore, the term “subcontractor” is viewed in relation to the parties and historically has never been applied in this manner. Subcontractor is not a defined term in relation to insurance coverage and, thus, is subject to allegations of ambiguity when applied to the coverage positions discussed here and in other issues. As pointed out later, there have been numerous court cases over the meaning of subcontractor. If, for example, an owner/developer commits contractually to a building project, the general contractor, in relation to the owner/developer, is a subcontractor for purposes of coverage, given that the contractor is agreeing to do work on the project the owner/developer is already contractually obligated to do. For purpose of insurance coverage, even if the owner/developer is not contractually obligated to build the project, but instead does it for its own purposes, those working on behalf of the developer can be said to be subcontractors, given the use of the word “a” in the exception to the “your work” exclusion. Simply stated, the exception to exclusion (l) refers to work performed on behalf of the named insured by “a” subcontractor. Use of the word “a” does not limit application of the exception to exclusion (l) to subcontractors hired by the named insured. Rather, it signifies that the exception applies to work performed on behalf of the named insured by any subcontractor.

Subcontractor versus Materialman

 Not surprisingly, the meaning of subcontractor in relation to a project owner, developer or construction manager who is the CGL policy's named insured is not typically an issue. Where the meaning of subcontractor has often been the subject of dispute, is when a person or entity that supplies material allegedly causes property damage after the work has been completed. It is here where insurers commonly deny coverage; and where those who need to distinguish between a subcontractor and a material supplier to buttress their respective arguments often bring suit. These cases involve areas that impact both disciplines, such as taxes, surety bonds, and mechanics liens. (In recent years, differentiating between the two is not only important with regard to liability insurance but also property insurance. It is for this reason that disputes dealing with property insurance are discussed later in these pages.)

 What appears to be the seminal case on this issue is National Union Fire Insurance Co. of Pittsburgh, PA v. Structural Systems Technology, Inc., 756 F. Supp. 1232 (1991). This somewhat complex case involved several parties, two insurance companies and several property and liability policies. In brief, SST, the named insured under a CGL policy, was hired to erect a 2,000-foot broadcasting tower. Among those with whom SST was engaged to perform certain work or services was L&R, a fabricator of steel components. After the work was completed, defects were discovered in the tower. Part of the problem was attributed to diagonal rods supplied by L&R. In any event, as SST was working on the tower and replacing the diagonal rods, the tower collapsed, resulting in its total destruction, including all transmitting and other attached equipment.

 One of several reasons cited by the insurer for denying coverage was the faulty work exclusion. The question posed was whether L&R, the manufacturer and supplier of prefabricated rods, was a subcontractor, thus qualifying for coverage under the exception to exclusion (l). The court decided that the insurer failed to prove that L&R was a materialman as opposed to a subcontractor. In fact, the court held that all indications pointed to L&R as being the subcontractor of a major component used in the tower.

 A later case involving this same exception to exclusion (l) where the decision was reversed against the insurer is Limbach Company LLC v. Zurich American Insurance Company, 396 F.3d 358 (2005). This case applied a two-pronged approach, dealing first with the subcontractor exception to exclusion (l), and then with the issue of whether a custom-built manufacturer of steam pipes was a materialman or a subcontractor.

 The first issued alleged that employees of the general contractor caused a leak in a steam pipe when they improperly unpackaged the pipes. While that damage was excluded, a claim was made under the general contractor's CGL policy for damage to the backfill work performed by a subcontractor that was caused by the leak to the steam pipe. Since the policy definition of “your work” includes work performed on the named insured's behalf, the insurer denied coverage. The U.S. Circuit Court of Appeals, Fourth Circuit disagreed, holding that coverage applied in light of the policy's exception to exclusion (l).

 On the second issue, the district court ruled that the manufacturer of the steam pipe was a materialman, rather than a subcontractor, and that the damaged steam pipe therefore was encompassed by exclusion (l); that is, the exception for a subcontractor did not apply. This decision was later overruled by the circuit court.

 Among the reasons justifying that the manufacturer was a subcontractor instead of a materialman were the following.

 First, the manufacturer's role was highly distinguishable from that of the supplier in the case of Webster Brick & Fidelity & Deposit Co., 27 Pa. D.&C. 3d 7 (1983), a case cited by the district court in its ruling. The issue in the Webster Brick case was whether a brick supplier was a subcontractor within the meaning of the Miller Act. (This Act, 40 U.S.C., Sec. 3131, requires a prime contractor of a federal project to furnish a payment bond to ensure payment to those who supply labor and/or materials.) In deciding that the brick supplier was not a subcontractor, the court in this case emphasized that the ordinary, generic bricks provided by the supplier were “neither custom-made to the prime contractor's specifications, nor [were they] . . . of relatively great importance in relation to the entire project”. The court further noted that it could “think of few building materials which are more interchangeable and less customized than brick.”

 The second reason that supports the manufacturer was a subcontractor rather than a materialman is the decision in the earlier mentioned case of National Union Fire Ins. Co. of Pittsburgh, PA v. Structural Systems Technology, Inc. Here a manufacturer of steel rods for a tower was held to be a subcontractor rather than a materialman.

 A third case justifying that a subcontractor is not a materialman was in the case of Wanzek Construction, Inc. v. Employers Insurance Co., 679 N.W.2d 322 (2004). In this case, the Minnesota court held that a supplier of coping stones for a new swimming pool was a subcontractor for purposes of the exception to the “your work” exclusion, since the supplier custom-made the coping stones to the architect's specifications and provided on-site supervision in connection with their installation.

 Finally, the court noted that the manufacturer of the custom-made steam pipe created the piping in accordance with shop drawings and project specifications, and provided on-site installation instructions. In addition, the parties' differing interpretations of the term “subcontractor”, from the court's perspective, demonstrated that the term was ambiguous.

 (Although the one who supplies materials is referred to here as a material supplier, it is important to note that the term that has been, and continues to be, commonly used is “materialman”. Therefore, the terms “material supplier” and “materialman” will be used interchangeably.)

The Surety Bond Perspective

It is not the purpose here to write a dissertation on the differences between insurance and suretyship, which is not insurance. It is important, however, to mention what suretyship is and, while there are many such types of surety bonds, only those commonly issued in relation to construction are mentioned, along with what these bonds guarantee. Briefly, a contract of suretyship characteristically involves the surety, which agrees to be answerable for another's debt, default or some other reason. Unlike insurance, suretyship involves three parties: (1) the principal, or debtor or obligor, who is obligated to fulfill some promise; (2) the obligee or creditor, who is the recipient of the principal's promise; and (3) the surety of the obligor, who guarantees to the obligee that the principal will fulfill its obligations as promised.

 For purposes of construction work, it is the contract bond that is important. Within this category of the contract bond (and for purposes of this subject of work performed by contractors) are performance and payment bonds. The performance bond, when commonly issued for public work projects, guarantees that the contractor work will be completed according to the design, plans and specifications. A payment bond guarantees that the work to be performed will be free from liens; or simply stated, all bills for labor and materials will be paid when due. These bonds are typically issued in relation to public work projects, and in fact are required if the work falls within the jurisdiction of the Miller Act of 1935, as mentioned earlier. On occasion, these bonds are discretionary with private construction work.

Court Cases

 As has been mentioned, when it comes to determining the meaning of a subcontractor with reference to the “your work” exclusion of the CGL policy, the attention of those involved in these disputes will turn toward contract bonds for assistance, with mixed results. One such case is Mosser Construction, Inc. v. The Travelers Indemnity Company, 430 Fed. Appx. 417 (2011) (unpublished). A general contractor entered into a contract with a city to make improvements to the city's wastewater treatment facility. Under the contract, the general contractor was required to “furnish all labor, materials, supplies, equipment and other facilities and things necessary or proper or incidental to complete performances of the work under [the] Contract”. That work included placing structural backfill beneath and around the foundation of a new odor-control building, and the contract required that the backfill meet the size and grading requirements for certain coarse aggregate.

 The general contractor retained the services of a subcontractor for the purchase of the specified structural backfill. After the work was completed, the walls of the new odor-control building began to crack. The city's investigation revealed that the cracking was due to failure of the structural backfill beneath and around the foundation. The city alleged that the backfill was defective because it contained gypsum that leached out of the material when exposed to groundwater, causing improper settling. The city notified the general contractor who in turn, notified its insurer, which denied coverage. The insurer's reason was that the supplier of the backfill was not a subcontractor and, therefore, the resulting damage was not covered by the exception to exclusion (l). The general contractor then filed suit against its insurer for a variety reasons.

 This case ultimately was decided on how one would interpret the term “subcontractor” as used in the CGL policy in the exception to exclusion (l). According to the court, dictionary definitions were said to provide guidance. This court stated that older editions of Black's Law Dictionary, namely the sixth edition carrying a 1990 date, defined subcontractor as follows: One who takes a portion of a contract from the principal contractor or another subcontractor; one who has entered into a contract, expressed or implied, for the performance of an act on behalf of another who has already contracted for its performance; one who takes from the principal or prime contractor a specific part of the work undertaken by the principal contractor.

 Newer editions of Black's, such as 2009, the court said, provide a similar definition: One who is awarded a portion of an existing contract by a contractor, esp. a general contractor; for example, a contractor who builds houses typically retains subcontractors to perform specialty work such as installing plumbing, laying carpet, making cabinetry, and landscaping. Webster's Third New International Dictionary, the court added, defines a subcontractor as “an individual or business firm that contracts to perform part or all of another's contract”. The American Heritage Dictionary of the English Language, the court went on to say, states that a subcontractor is “One that enters into a subcontract and assumes some of the obligations of the primary contractor”.

 These definitions are broad, said the court, and could be read to encompass a material supplier because read literally, the supplier contracted (via the backfill purchase order) to take a portion of the general contractor's general contract—the obligation to provide backfill.

 The parties were said to have urged the court to define subcontractor with reference to cases interpreting the Miller Act, 40 U.S.C., Sec. 3131, which, as was stated earlier, requires a prime contractor of a federal project to furnish a payment bond to assure payment to individuals who supply labor and/or materials on federal projects. Under the Miller Act, the payment bond protects only those persons who have a contractual agreement with a prime contractor or subcontractor in such projects. Persons supplying labor or material to a mere materialman are not protected. It was mentioned however, that in some cases, subcontractor status has been determined by the “substantiality and importance of [the purported subcontractor's] relationship with the prime contractor”. Courts, for example, have been said to look to multiple factors in making this determination, including whether the product supplied was custom fabricated, whether the supplier was required to perform on site, and whether the materials supplied came from existing inventory.

 It was stated that under the general definition advanced in the case of Clifford F. MacEvoy Co. v. United States for Use and Benefit of Calvin Tomkins Co., 322 U.S. 102 (1944), the supplier of that backfill could have been viewed as a subcontractor because it performed and took from the general contractor “a specific part of the . . . material requirements of the original contract”. Conversely, it might not have been considered as a subcontractor under other cases, because it performed no on-site work and supplied the backfill from existing inventory.

 The parties also debated the significance of J.T. Weybrecht's Sons Company v. Hartford Accident & Indemnity Company, 119 N.E.2d 836 (1954). There, the Ohio Supreme Court interpreted the term “subcontractor”, as used in a state statute governing contractors' performance bond requirements. The court held that “[t]he ordinary meaning of the word 'subcontractor' will include such a materialman who contracts to furnish material to a contractor for use in performing his contract”. Thus, the court said the word “subcontractor” should be given its ordinary meaning so that it may include one who contracts with a general contractor for performance of part of the work to be performed under the general contract, even though the part contracted for involves only the furnishing of materials. Under this definition, the supplier would have qualified as a subcontractor. (Note that this 1954 ruling was superseded by statute.)

 The Court of Appeals then went on to say that, although the Miller Act cases and Weybrecht's were instructive, they were not controlling because they interpreted “subcontractor” in contexts different from that at issue. It stated that no Ohio court had discussed the meaning of subcontractor with reference to the “your work” exclusion, but that several courts applying the law of other states have done so. These other courts have concluded, the court explained, that material suppliers can be subcontractors, but some combination of fabrication to custom specifications or on-site work was required. In other words, merely supplying material and nothing more will not get a supplier the designation of “subcontractor”.

 Referring to Wanzek Construction, Inc. v. Employers Insurance of Wausau, 679 N.W.2d 322 (2004), the Court of Appeals stated that the Supreme Court of Minnesota in the Wanzek case concluded that the term “subcontractor” was ambiguous, because it was not defined in the policy or by statute or regulation. The court therefore construed the ambiguity in favor of the insured and held that “where, as here, a supplier custom fabricates the materials to the owner's specifications and provides on-site services in connection with the installation, the supplier met the definition of subcontractor under the exception to the “your work” exclusion. This was the same conclusion, the Court of Appeals said, with regard to the previously mentioned cases of National Union Fire Ins. Co. of Pittsburgh, PA v. Structural Systems Technology, Inc.; and Limbach Co., LLC v. Zurich Am. Ins. Co. Other cases referred to were CGU/Hawkeye Sec. Ins. Co. v. Oasis Las Vegas Motor Coach Park, L.P., 65 Fed. Appx. 182 (2003) (unpublished) and Bldg. Specialties, Inc. v. Liberty Mutual Fire Ins. Co., 712 F. Supp.2d 628 (2010). Both of these cases were cited for the proposition that the court held a supplier of building materials to be a subcontractor for the purposes of the “your work” exclusion and exception based on custom fabrication combined with on-site presence.

 The preceding cases provide some guidance as to the individuals or entities that qualify as subcontractors. The court also noted that there are cases where persons or entities have not been considered as subcontractors within the meaning of the exception in the exclusion (l). Among the cases cited are CGU/Hawkeye decision in which the dissenting opinion offered the view that “supplier and deliverer” of concrete was not a subcontractor but merely a materialman; Collett v. Insurance Co. of West, 75 Cal. Rptr. 2d 165 (1998), which held that a building inspector hired by a masonry contractor was not a subcontractor, even under the broadest definition of that term; and Web Construction Inc. v. Cincinnati Ins. Co., 2007 WL 4230751, which held that issues of material fact existed as to whether a concrete supplier provided standard-mix or custom-fabricated concrete and whether it performed significant on-site work for purposes of qualifying as a subcontractor.

 In light of the foregoing, the Court of Appeals explained that cases construing the subcontractor exception leave considerable uncertainty regarding where exactly to draw the line between subcontractors and mere material suppliers. The court's conclusion, therefore, should not have been any surprise when it held that the supplier of the structural backfill qualified as a subcontractor, since it manufactured the course aggregate at its own facility using its own equipment and did not simply purchase the aggregate from another supplier. Because of this decision, the insurer had the duty to provide a defense against the claims that the backfill produced and supplied caused damage to the water treatment plant facilities. In so holding, this decision was a reversal of the district court in granting summary judgment to the insurer.

The Property Insurance Perspective

 Although the theme of this article is liability insurance, it would not be complete without discussing the property insurance perspective, because terms such as subcontractor and materialman are prevalent there insofar as construction matters are concerned. In fact, when it comes to builders risk policies, many insurers will agree to cover contractors of all tiers as named insureds, but some insurers are still reluctant to also include material suppliers. This despite the fact that some construction contracts such as the ConsensusDocs specifically call for material suppliers to be included as named insureds, along with others involved in the construction process.

 One can possibly understand the rationale for this reluctance with respect to those entities that do nothing but supply materials. However, those entities that also fabricate the materials supplied should be placed in a different category, just as the courts have done.

 One property insurance case that involved the meaning of subcontractor is Texaco Exploration and Production, Inc., et al., v. Amclyde Engineered Products Company Inc., et al., 448 F.3d 760 (2006). The project owner (Texaco) hired a contractor to construct a compliant tower defined as a platform fixed permanently to the Outer Continental shelf, adjacent to the Alabama shore, designed to flex with the forces of wave, wind and current. During installation of the south deck module (SDM) to the tower, a main load line on a crane failed, causing the SDM to fall into the Gulf of México. The failure resulted in a complete loss of the SDM and a 15-month delay in the project.

 The contract between the project owner and the contractor contained a clause providing that a valid subcontractor on the project was not liable for any consequential damages. These specific contract provisions read: “To the extent not covered by Builders Risk and Difference in Conditions insurance. and notwithstanding any other provisions of this Agreement, Texaco and Contractor waive and release any claim against the other for consequential damages, however and whenever arising under this Agreement or as a result of or in connection with the Work and whether based on negligence, unseaworthiness, breach of warranty, breach of contract, strict liability or otherwise. Section 4 of the . . . Contract defines Contractor as follows: Contractor means Contractor, its parents, subsidiaries, and affiliates, the agents, employees and subcontractors of any of them. If Contractor shall cause any part of the Work hereunder to be performed by a subcontractor, the provisions of this Agreement shall apply to such subcontractor and his or its employees in all respects as if they were employees of the Contractor, and the Contractor shall be liable for the Work of the subcontractor accordingly. No subcontract shall be made without the prior written approval of Texaco of both the subcontract and the subcontractor (such approval shall not be unreasonably withheld), but no such approval shall affect the provisions of this Agreement.”

 As an aside, the contractor also had a pre-existing contract for other jobs with an entity known as Amclyde, which provided that Amclyde was a subcontractor on all work that the contractor was obligated to perform for third parties. An interesting point in the court's ruling comment was that this was the third time that it had addressed questions stemming from the loss of the SDM. The court concluded that Amclyde was a subcontractor, i.e., “one who takes a portion of a contract from the principal contractor or another subcontractor”, and that the work performed by Amclyde “. . . was integral to and was required for compliant tower construction”. The court also considered whether the Builders Risk policy altered the common understanding of the term “subcontractor” relative to its ruling, and held that it did not.

 The U.S. Court of Appeals affirmed the district court's decision, holding that Amclyde was a subcontractor and entitled to the waiver of liability for damages called for in the contract language, despite arguments to the contrary. The court also noted that Texaco benefited from a broad understanding of the term “subcontractor” because the contract also required subcontractors to waive any potential claim for consequential damages arising from Texaco's negligence.

 A second court case that involved the distinction between subcontractor and materialman in a builders risk policy is Aetna Casualty & Surety Company v. Canam Steel Corporation, et al., 794 P.2d 1077 (1990). A church contracted with a general contractor to construct an addition. The contract was said to be the standard one of the American Institute of Architects (AIA), which provided that both the church and general contractor waived all rights against subcontractors for damages caused by fire or other perils to the extent covered by insurance.

 The general contractor contracted to purchase joists and joist girders from a steel company. Under this agreement, the steel company was to furnish certain specified materials and to deliver these materials free on board at the jobsite. After substantial work on the construction of the addition had been performed, the roof collapsed during a snowstorm. The insurer had issued a builders risk policy and it was alleged to have paid $1.4 million for the investigation and reconstruction of the addition. It then sued the steel company in subrogation. The trial court held that the claims made against the steel company had been waived because the steel company was a subcontractor.

 On appeal, the insurer maintained that the trial court had erred in concluding that the steel company was a subcontractor. The contract defined subcontractor as “a person or entity who has a direct contract with the Contractor to perform any of the Work at the site”. The Work was defined to include “all materials and equipment incorporated or to be incorporated in such construction”. The issue here was whether the steel company had a direct contract with the general contractor to perform any of the work at the site, i.e., whether the steel company was a subcontractor that would be afforded the benefit of the church's waiver. In reversing the trial court, the Court of Appeal held that the steel company was not a subcontractor, since its contract did not require it to perform anything at the site. This court also stated that courts construing identical contract provisions have held that merely contracting to deliver material to a jobsite does not make a party a subcontractor.

 See also Baldwin Co. v. Weyland Machine Shop, Inc., 685 S.W.2d 537 (1985) where a party was a supplier and not a subcontractor, since it merely delivered goods for work to be performed by another.

 Conclusion

 Whether the nature of the insurance concerns liability, first party property insurance, or surety bonding, determining whether a person or entity is a subcontractor can sometimes generate a dispute that only a court can resolve. The fertile area here is with regard to liability insurance because it is sometimes possible to obtain coverage for property damage having to do with construction defects when the work has been performed by a subcontractor. The specific provision is the exception to the CGL policy exclusion (l) dealing with property damage to the work of the named insured. This assumes, of course, that a court has not ruled against coverage by maintaining that a construction defect, regardless of whose fault it might be, is not property damage or it was not caused by an occurrence. It also assumes the insurer has not issued an endorsement nullifying the exception to exclusion (l).

 Insurers desiring to deny coverage despite the exception to exclusion (l) of the CGL form will maintain that the person or entity that caused the damage is a materialman, rather than a subcontractor. This is an area where litigation is common and where those who are likely to be challenged need to be prepared in the event of coverage denial.

 In many cases, the underlying construction contract will be helpful in determining the meaning of subcontractor. Fraught with an absence of court decisions on which to consider and perhaps rely, some of those involved in disputes will turn their attention to cases involving surety bonding or property insurance. In the final analysis, however, courts often will decide that the best way to resolve the question is to rule the term to be ambiguous.