General Commercial Liability Insurance and the “Your Work” Exclusion
In seeking indemnification for damages caused by a subcontractor’s work, a general contractor or upstream subcontractor should pay close attention to the “your work” exclusion and the “subcontractor exception” in its insurance policy.
In 2007, Harkins Theatres hired Double AA
Builders as general contractor on the construction of a theater
complex. Double AA subcontracted with Anchor Roofing to install the
roof, and Anchor added Double AA as an “additional insured” to its
various general commercial liability policies issued by Preferred
After construction was completed, the
theater’s roof began to leak. The leak resulted in damage to work
performed by other subcontractors. The leak also caused Harkins to
lose business, and Harkins asked Double AA to replace the roof,
which it did.
Double AA then filed a lawsuit seeking
indemnification from Anchor, Preferred (Anchor’s insurance company),
and Westfield Insurance (Double AA’s insurance company). In its
suit, Double AA sought to recover the cost of replacing the roof
but, significantly, not to recover the cost of repairing other
leak-related damage to the theater.
Double AA settled with Westfield and
obtained a default judgment against Anchor. That left Double AA to
do battle with Preferred over whether replacing the roof was a
covered loss under Anchor’s policy.
"Your Work" Exclusion
At trial, the judge ruled in favor of Double
AA and against the insurance company, finding that the leak
constituted an occurrence that resulted in covered property damage
and that a “subcontractor exception” clause removed the claim from
the policy’s “your work” exclusion.
Preferred appealed the trial court’s ruling
to the Arizona Court of Appeals, which interpreted the “your work”
The “your work” exclusion in a commercial
general liability policy generally bars coverage for an
additional insured (in this case, Double AA) when the only
damaged claimed was to the work performed by the named
insured (Anchor Roofing). The exclusion, as it appears in the
policy, may use wording such as this:
This insurance does not apply to
property damage to work performed by or on behalf of the
Named Insured arising out of the work or any portion thereof, or out
of materials, parts or equipment furnished in connection therewith.
Because Double AA’s lawsuit was limited to
recovering only the cost of replacing the roof, and did not include
other damages caused by the leak, the Court of Appeals found that
the work performed by Anchor Roofing did in fact qualify for the
“your work” exclusion, thus freeing Preferred from having to
indemnify Double AA.
Read the Court of Appeals’ opinion in
Double AA Builders, Ltd. v. Preferred Contractors Insurance Company,