Lang & Klain, PLC

 

Twitter

Facebook

 
 

Construction Law

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 Contractors Insurance.

 

This article appeared in the February 2017 issue of "The Construction Advisor" published by Lang & Klain, P.C.


Free Subscription to the Construction Advisor


View the Construction Advisor index

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” exclusion differently.

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. [Emphasis added.]

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, LLC.