Builders and contractors who buy commercial general liability coverage policies with the impression that they will keep them safe from allegations of inadequate or faulty work must beware of their policies.
It's important to know that a CGL policy does not provide coverage for work that is faulty. In order to qualify for payment under a CGL policy, there must be a specific type of occurrence that causes property damage.
The terms in a CGL policy define an occurrence as an accident. This includes repeated or continuous exposure to conditions that result in bodily injury or property damage. The damages or injuries must occur during the policy period in order to qualify for coverage.
These injuries or damages must not be intentional.
CGL policy terms specify that property damage is a physical injury to tangible property. This includes all losses of that property that happen as a result of the occurrence. It also covers the loss of use of tangible property that is physically unharmed.
When disputes arise as a result of defects in a building project, there are several factors that must be considered to determine whether the occurrence requirements and property damage requirements have been satisfied. The factors include:
- Work or products that the contract states the policyholder was required to provide
- Policy definitions
- Alleged faulty construction job
- Nature of the cause of the faulty work
These dispute conditions apply to defects in a structure sold or built by the contractor. They also apply to defects in a product that the contractor manufactures and sells independently.
If you're a contractor who is shopping for a CGL policy, contact me for an analysis of your policy and its terms. We'll look closely at the definitions of property damage and occurrence and ensure you have a solid understanding of how they affect your coverage and business operations.
This is crucial because each state's law differs regarding such issues. I'll l be able to advise whether or not the policy is in accordance with state laws.
Some policies' terms may indicate coverage for situations that a state's laws may not provide coverage for.
Keep in mind that state laws supersede anything written in an insurance contract. Some states specify that third-party property damage is a requirement for potential CGL coverage. Many states also specify that there is no coverage under a CGL policy for replacement or repair of damaged goods provided by the contractor. It's also important to know that the work of a subcontractor is not covered under this law.
New Jersey was the leading state in addressing and defining defects in a CGL policy. A clear distinction was made between the replacement and repair of faulty materials. This was not considered as property damage covered under the CGL. However, third-party damage to a property may be covered.
Since New Jersey's definitions emerged, many other states have embraced the state's view of business risks not counting as third-party property damage in the terms of a CGL policy.
To better understand what the terms mean, what is covered and what state laws are in effect, just give me a call!