October 29, 2018

 Summary: When a contractor negotiates with another party to perform some work, the contractor may extend an express warranty that its construction materials and services will be provided in a reasonably workmanlike fashion. Even if the contractor does not express such a warranty, the mere act of holding himself or herself out as being able to do the work creates an implied warranty that the materials will be fit for their particular purpose and the work performed in a competent and skillful manner. Similar warranties come into play when a manufacturer or a seller of goods places its products into the stream of commerce.

Insurance underwriters often refer to the consequences that can result from such warranties as "business risk", or the risk that the seller or contractor will need to repair or replace defective products or redo faulty work at its own cost. Naturally, the business risk also encompasses situations where the contractor's or seller's negligence in performing work or in manufacturing or selling a product may obligate it to repair or replace the work or product. While insurers have generally been willing to insure the risk that faulty work or products of the insured will cause bodily injury or damage to property other than the work or product itself, and for which the insured is legally liable, they have not been willing to insure the business risk; that is, insurers do not wish to become the guarantors of the fitness, quality, or reliability of the insured's work or products. To that end, standard general liability insurance policies contain numerous policy provisions and exclusions aimed at excluding the business risk.