As a general contractor, your business must have Commercial General Liability insurance (CGL). This type of insurance is required for most construction contracts. Primarily, CGL covers personal injuries and property damages to others during the job or on your completed work. Most CGL insurance policies include clauses for exclusion—specific times that insurance will not cover damages. One common exclusion in contractor policies is the “Damage to Your Work” or “Your Work” exclusion. Below, we discuss what this exclusion means, common scenarios where it is used, and how it impacts a claim against your insurance as a general contractor.
The Damage to Your Work exclusion protects the insurance company from paying to cover the cost of replacement materials and structures resulting from faulty or defective work. The policy may word this exclusion similar to 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. 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.”
Most CGL policies cover property damage and bodily injuries caused by defects or construction errors but will not cover replacement costs for fixing the damaged work. The Damage to Your Work exclusion allows insurance companies to deny covering the costs of repairs or replacement for materials for work you performed.
Insurance covers property damage and personal injuries to clients or customers caused by general business risks. These policies are not meant to act as a warranty, covering the replacement or repair of defective parts related to the claim. The Damage to Your Work exclusion prevents insured business owners from receiving funds to repair or replace the faulty work that caused the damage in the first place. It includes denying claims for building materials like shingles, flooring, drywall, and the cost of labor to repair what was damaged.
To understand how the Damage to Your Work exclusion may be utilized in the real world, here are two instances where this exclusion may come into play:
During a bathroom remodel, a contractor retiled the shower. Before installing the tile, the contractor placed a waterproof rubber membrane underneath the shower pan to prevent water from entering the subfloor. During installation, the membrane ripped, causing a hole that the contractor did not notice before continuing to install the shower. Several months after the remodel was complete, water began to leak and caused damage to the surrounding shower drywall and the shower’s subfloor. To fix the leak, the contractor had to remove some of their previously completed tile work and replace part of the subfloor. The contractor made a claim through his CGL insurance, which paid for the client’s property damage. He also claimed to recover the cost of labor, and for replacing the tile he had to tear out. The claim was denied under the contractor’s Damage to Your Work exclusion, citing the tile repairs were only needed due to the contractor’s poor workmanship caused by the tear in the membrane.
A contractor oversaw a roof install for a client. However, the shingles were not installed properly. Several months later, the roof leaked during a bad thunderstorm, causing damage to the client’s belongings stored in the attic. To fix the damage, the contractor had to replace the entire roof. The contractor filed a claim with his CGL insurance, which covered damage to the homeowner’s belongings. However, the insurance denied coverage for the cost of replacing the roof, citing the Damage to Your Work clause as the roof damage was caused by faulty shingle placement.
As in the sample wording above, the Damage to Your Work exclusion often includes phrasing regarding subcontractors. In these instances, CGL may cover the cost of repairs if the damage was caused by work done on your behalf by a contractor. This is because the subcontractor should have a similar exclusion within their own CGL policy. In this instance, the subcontractor would be responsible for the costs of repairs and damages.
The Damage to Your Work exclusion is common in construction contracts. However, it is often contested and regularly misinterpreted. If you believe your insurance company has unfairly denied your claim under the Damage to Your Work exclusion, contact the Boutty Law Firm. Attorney Shane Boutty is a certified contractor and former construction business owner. He understands construction law, claims, and insurance policies, fighting for your rights as a construction professional. Schedule a consultation by calling 407-710-0461 or stop by our office in Maitland for a consultation to discuss your case.