In this case the heat tape installation began May 20, 2019 and Electrician was notified of warranty issues with the roof approximately 2 months prior to reporting to Carrier A (January). Carrier A's policy ended 07/1/2019. End Email

Is there a difference between a GL claim and a Construction Defect Claim? Are we obligated to provide notice to Carrier B, even though the occurrence was during Carrier A's coverage period?

Unknown Subscriber

Answer:

Yes, there is a difference between a construction defect claim and a CGL claim. However, it is difficult to determine whether a claim is a construction defect claim that will be recognized by the legislature of the state where the work was performed.

The CGL is not intended to cover a contractor's own faulty work. As such, the Your Work exclusion of the CGL excludes coverage for the cost to repair or replace the contractor's own defective work, unless that work was performed for the contractor by a subcontractor. The rationale for this subcontractor exception is a contractor can control its own performance, but cannot necessarily control a subcontractor's performance. This exception forms the basis for a construction defect claim.

Whether the claim will meet the description of a construction defect claim will likely be determined based on whether the damage to the roof meets the definition of an "occurrence" and whether the "property damage" (roof damage) resulted from the construction defect. The majority view is coverage exists where defective work causes damage to property other than the contractor's work. For example, a defective roof caused by the faulty work of a roofing subcontractor was not covered under a Florida CGL policy where there was no other damage to the building or contents resulting from the defective roof. The rationale for this majority view is the contractor should not be covered for its own substandard work. If, however, the roof work resulted in a leak that caused water damage to the building floor, the floor would likely be covered, assuming all other policy terms and conditions were met.

Based on the description you have provided, there would likely not be coverage under the standard CGL for the electrical contractor's own work due to the Your Work exclusion. This exclusion is based on the idea that the CGL should not cover damages caused by an insured's substandard work or product. If, however, the subcontractor (roofer) were working on behalf of the insured, then the exception for work done by a subcontractor could apply, thus constituting a construction defect claim.

However, the policy will be triggered only if a state considers construction defect to be an "occurrence." State legislatures have attempted to clarify or correct judicial decisions but the laws still differ from state to state. Varying factual scenarios and nuances in the laws and court decisions further exacerbate uncertainty about insurance coverage for these claims.

To answer your question about reporting a claim to both insurers, since the property damage spans both coverage terms, and is in fact ongoing, it would be best to report the claim to both insurers.