Good Morning, I need to see if I can get your take on a Commercial General Liability claim related to work done by a sub-contractor hired by my client. The client hired a sub-contractor to install water meters in an apartment complex, and some of the meter plumbing connections leaked causing resulting water damage to the building. My client attempted to get the sub-contractor and their insurance carrier involved, but with no luck in getting them to step up and take care of the damages.

We then submitted this to our clients General Liability policy. The carrier has taken the stance that our client has no legal liability or negligence in this matter and is unwilling to handle the resulting water damages to the property. We have requested that they assist our mutual client with the resulting property damages and then pursue the sub-contractor for the damage payments. Currently they are still taking the stance that our client was not negligent and thus they will not pay and subrogate.

Our view is that our client did in fact hire the sub-contractor and is responsible to make sure the work was done correctly and therefore does have culpability for the damages. Since the sub-contractors installation of the water meters resulted in property damage we would look to our client's carrier to assist with the claim and they are not following through and remain staunch there is no liability on our client that hired the Subcontractor. If that is the case I would think that our client's GL policy would never step in on a sub-contractor claim where they caused resulting property damages.

Would you be able to review this and give me your thoughts. Thanks.

New York Subscriber

In this situation, the insurance carrier is likely relying on the exclusion in the CGL form j. Damage to Property, under which item (5) excludes property damage to that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations.

This exclusion however, is often misunderstood. It is important to note the words “are performing operations” in the exclusion. Therefore, this exclusion only applies while the work is being performed, not after the work has been completed.

Exclusion l. Damage To Your Work excludes property damage to the insured's work arising out of it or any part of it and included in the “products-completed operations”. However, this exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the insured's behalf by a subcontractor.

The work is clearly within the insured's products-completed operations hazard, was performed on behalf of the insured, and the water damage arose out of work performed on the insured's behalf by the subcontractors. Therefore, there should be coverage for the insured under the CGL form.

Further, if the insurer is using the damage to property exclusions to deny coverage, the burden is on the insurer to establish the fact that the exclusions apply. For the insurer to simply state that coverage is excluded is not enough to settle the issue; the insurer must prove its case.

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