As a result of two recent Pennsylvania decisions, insurance carriers are now aggressively taking the position that there is no insurance coverage under commercial general liability policies (“CGL)” for property damage claims caused by faulty workmanship.
In the recent cases, Kvaerner v. Commercial Union Insurance Co., and Millers Capital Insurance Company v. Gambone Brothers Development Co., Inc., the Courts essentially held that faulty workmanship is not an accident and, therefore, property damage claims arising from faulty workmanship are not an “occurrence” within the meaning of a CGL policy. This means that contractors are now faced with significant uninsured exposure when their allegedly faulty workmanship causes property damage to a part of the building on which they did not work.
By way of illustration, a roofer installs new roofing shingles on a home. As a result of faulty installation, the roof begins to leak, causing damage to the roof decking, which the roofer had not replaced, and interior drywall. Prior to these new cases, if the homeowner submitted a claim to the roofer’s CGL carrier, there would be coverage to pay for the resulting property damage to the decking and interior drywall, but there would not be coverage to fix the improperly installed roof. Now insurance carriers are taking the position that there is no coverage for the resulting property damage.
In response to these decisions and the demands of contractors for coverage for property damage arising from faulty workmanship, many insurance carriers that provide CGL coverage to contractors are now offering a so-called “Resultant Damage” endorsement for CGL policies. This endorsement has the effect of restoring, or partially restoring, insurance coverage for property damage arising from faulty workmanship that has been eliminated by the new rulings.
Accordingly, it is now very important that:
- All contractors talk to their insurance agents and brokers to ensure that their CGL policies have the Resultant Damage endorsement
- If necessary, take immediate steps to obtain the endorsement
General contractors should consider adding a requirement in their form subcontract to require that all subcontractors:
- Obtain the Resultant Endorsement on their CGL and umbrella policies
- Attach a copy of the endorsement to the required Certificate of Insurance