News - Tag Archives: liability insurance

Coverage Under Commercial General Liability Insurance for Poor Workmanship

Commercial General Liability (CGL) Insurance is a standard type of insurance policy that protects businesses from personal injury, property damage, and advertising liability claims that arise out of the business’s operations, products, or premises. The language in these policies is standard throughout North America and is drafted by Insurance Services Offices, Inc. (ISO), an organization that publishes language for insurance companies. In 1986, ISO published some important amendments to the standard CGL policy, which has resulted in a fair amount litigation and legislation over the years.

Most agreed on the types of claims that CGL insurance was designed to cover. For example, it covers grocery stores wherein a customer slips and falls. It covers a contractor whose construction work inadvertently damages a neighboring building. It covers a plumber who installs a toilet that later begins to leak water, damaging the floor below. However, one significant question with which legislatures and courts nationwide have grappled was whether CGL policies cover construction contractors for poor workmanship. In West Virginia, the answer was “no” for more than fifteen years and now—good news to construction companies—the answer is yes, sometimes.

The standard CGL policy covers “bodily injury” and “property damage” only if the “bodily injury” or “property damage” is caused by an “occurrence.” The policy defines “occurrence,” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy doesn’t further define the term, “accident.” Cherrington v. Erie Ins. Prop., 231 W.Va. 470 (W.Va., 2013).

In 1999, in the seminal case of Erie Insurance Property and Casualty Co. v. Pioneer Home Improvement, Inc., the West Virginia Supreme Court ruled that, because poor workmanship is not specifically mentioned in the CGL policy language, it is not covered. In another case in 2001, the court said that it is not covered because poor workmanship is not an “occurrence” because it is not an “accident” as contemplated by the policy. Again, in 2005, the court said that poor workmanship is not covered because CGL policies are not meant to insure contracts or performance, but to protect businesses from general “tort” liability.

However, since that time, courts across America have ruled in the other direction, finding that CGL policies do cover for poor workmanship in some circumstances. Other state legislatures passed laws requiring CGL insurers to defend contractors against poor workmanship claims. Therefore, the West Virginia Supreme Court took another look in 2013 and focused on “Exclusion L” which provides that CGL coverage does not apply to the contractor’s work after the work is finished and has been delivered to the property owner’s possession. This is consistent with the doctrine of business risk which says that a business must bear the risk that it will have to replace or repair defective work in order to meet contractual requirements. However, there is an exception to Exclusion L: it does not apply to sub-contractors. So if you hire a sub-contractor to do some of the work on a project and the work is shoddy and the property owner sues you, your CGL policy will cover you, despite the business risk doctrine.