Insurance adjusters and contractors need to be aware of the divergent applications of the “your work” exclusion based upon the jurisdiction in which a case is being litigated.
Insurance adjusters and contractors need to be aware of the divergent applications of the “your work” exclusion based upon the jurisdiction in which a case is being litigated. This article analyzes a recent Alabama Supreme Court decision dealing with this exclusion, highlights the growing trend across the Country regarding application of the exclusion, and suggests a potential shift under Alabama law.
Alabama courts have consistently held that faulty workmanship alone does not trigger an “occurrence” under a CGL policy. The primary reasoning for this approach has been that CGL insurance is not intended to protect an insured from having to repair or replace its own improperly performed work. Despite this rationale, many courts across the country are moving to a more liberal view, finding that a contractor’s work does constitute an “occurrence”, triggering coverage under a CGL policy.
In recently addressing this issue, the Alabama Supreme Court held that property damage to a contractor’s own work is not an “occurrence” under a CGL policy. See Shane Traylor Cabinetmaker, LLC v. American Resources Ins. Co., No. 1110418, Westlaw 1858782 (Ala. May 3, 2013). The Court’s decision highlights the distinction between coverage for damage to an insured’s own faulty work (which is not covered) and damage the faulty work does to other property (which is covered).
In Shane Traylor, a building owner filed a claim against its contractor asserting that the contractor performed work that would have to be repaired or replaced. The insurer refused to defend the contractor against the claim, asserting that the claim did not qualify as an “occurrence” under the CGL policy. As a result, the contractor filed suit for breach of contract against the insurer. The Circuit Court granted summary judgment to the insurer, finding that there had been no “occurrence” to trigger coverage under the terms of the policy.
On appeal, the contractor argued that the building owner’s claim of defective workmanship constituted an “accident,” which triggered a duty to provide coverage under the policy. In rejecting this argument, the Alabama Supreme Court affirmed its earlier decision in Town & Country Property LLC v. Amerisure Ins. Co. and drew a distinction between coverage for damage to an insured’s faulty work and damage the faulty work does to other property. See Town & Country Property LLC v. Amerisure Ins. Co., No. 1100009, WL 5009777 (Ala. Oct. 21, 2011). Based upon this distinction, the Alabama Supreme Court ultimately held that because the owner’s claim did not allege the contractor’s work caused damage to the work of others resulting in additional repairs, there had been no “occurrence” to trigger coverage or a duty to defend the contractor under the CGL policy.
Unfortunately, in so holding, the Alabama Supreme Court failed to provide much in the way of clarification as to why the same act that causes property damage to both itself and the work of others can be considered both an “occurrence”, and not an “occurrence” at the same time.
For now, insurers and contractors alike should be aware of the risk associated with this coverage issue and the implications that it holds for an insurer’s duty to defend. In the future, it will be interesting to see if the Alabama courts continue to maintain this position or retreat to the recent trend to recognize that a CGL policy “unmistakably includes defects in the insured’s own work within the category of an ‘occurrence,'” and, therefore, triggers an unequivocal duty to defend. See Scottsdale Ins. Co. v. R.I. Pools, Inc., 710 F.3d 488, 492 (2nd Cir. 2013). If you have any questions regarding application of the “your work” exclusion in the particular jurisdiction where you may be at risk, please feel free to contact our office.