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CGL For Poor Workmanship: Is Your Business Covered?
Wondering whether you have coverage under CGL 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 business operations, products, or premises. The language in these policies is drafted and standardized by the Insurance Services Offices, Inc. (ISO), an organization that publishes language for insurance companies. Although the policy language is standard throughout North America, questions about coverage under CGL for poor workmanship often arise. In 1986, ISO published some important amendments to the standard CGL policy that have has resulted in a fair amount of litigation, particularly on issues related to coverage for poor workmanship.
CGL for Poor Workmanship: Questions about Coverage
Legislatures and courts nationwide have grappled with one significant question: Does CGL cover poor workmanship? Most agree on the types of claims that CGL insurance was designed to cover. For example, it covers grocery stores when a customer slips and falls. It covers an independent 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, it has been challenging for states to reach a consensus regarding coverage under CGL for poor workmanship. In West Virginia (WV), there had been “no” coverage for poor workmanship under CGL for more than 15 years. But now—good news to construction companies—claims on poor workmanship are sometimes covered.
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 (2013).
WV Supreme Court Rulings on CGL for Poor Workmanship Claims
The WV Supreme Court had made prior unfavorable rulings in cases involving CGL coverage for poor workmanship. For example, in 1999, in the seminal case of Erie Insurance Property and Casualty Co. v. Pioneer Home Improvement, Inc., the 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 there is no coverage for poor workmanship under CGL because poor workmanship is not an “occurrence” as 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 poor workmanship in some circumstances. Other state legislatures passed laws requiring CGL insurers to defend contractors against poor workmanship claims.
What Circumstances Warrant Coverage for Poor Workmanship?
In 2013, the WV Supreme Court took another look at CGL for poor workmanship and focused on “Exclusion L,” which states that coverage for poor workmanship under CGL does not apply to a 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 to meet contractual requirements. However, there is an exception to Exclusion L: it does not apply to subcontractors.
So, is poor workmanship covered by CGL? Yes. But CGL for poor workmanship only covers subcontractors. If you hired a subcontractor 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.
Need Help With CGL Issues?
If you would like to learn more about coverage under CGL for poor workmanship, seek advice from an experienced construction lawyer who is deeply familiar with judicial decisions relating to CGL policy language. The attorneys at Hendrickson & Long, PLLC have years of experience representing construction professionals in West Virginia (WV), Kentucky (KY), and Pennsylvania (PA). Contact us today at 304-346-5500.