California Chief Justice Malcolm Lucas once opined, “No one knows what evil lurks in the hearts of men…but it’s all insured.” That is a typical viewpoint of most insureds…why does someone buy insurance if it doesn’t cover everything they do? We’re not talking about what I blogged about recently, “illusory coverage,” but rather about mainstream policies that cover a lot of things, but not everything.
A couple of days ago, I received an email from my web site from a consumer who did not understand why a claim was denied by the CGL insurer of a contractor that did work for the consumer. The following is the email and an excerpt from my response.
The inquiry:
“Could I ask you an insurance question? A family-owned carpet cleaning company cleaned my sofa and did damage to the sofa. I made a claim to their liability insurance company, and the company is claiming that the policy had an exception for ‘your work’. What is the purpose of liability insurance if it doesn’t cover damages as a result of the negligence of the insured? Any light you could shed on this would be appreciated. It seems unfair to both the insured as well as to me.”
My response:
All commercial general liability (CGL) policies include workmanship exclusions. They exclude damage to the insured’s own work to avoid the CGL policy serving as some kind of warranty of workmanship, something considered an uninsurable economic risk. Here are some examples of such exclusions from an “ISO standard” CGL policy that I’ve attached:
Personal property in the care, custody or control of the insured;
That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or
That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”. This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
The first exclusion applies to damage to any personal property in the CGL insured’s care, custody or control such as your sofa. The second and third exclusions apply to damage to real property and both real and personal property, respectively, that occurs during the insured’s operations on that property, the third exclusion being a pure “workmanship” exclusion. The fourth exclusion applies to property damage that occurs after operations are done (known as “completed operations”).
In some rare cases, coverage can be bought by the insured within the CGL program, usually with a small sublimit and/or large deductible, but these markets come and go. The more common way to cover this is through a warranty or maintenance bond and/or a performance bond. You’ve probably heard some companies advertise that they are “Insured and Bonded.” What that actually means depends on the actual verbiage of the insurance and bond products they purchased.
To summarize, a CGL policy is not intended to cover faulty workmanship committed by the named insured because of various exclusions that preclude coverage. Most insurers consider this to be purely an uninsurable economic business risk, though from time to time some limited coverage appears (and then usually disappears) in the marketplace.
I am currently researching and writing a book with the working title of “The History, Evolution, and Meaning of the Industry Standard CGL Policy Property Damage Exclusions.” This is proving to be far more time consuming than I planned, but I hope to finish by late summer or early fall.
