Construction accidents often result in damaged property. Fires from faulty wiring scorch walls, paint sprays onto cars, and collisions dent earth-moving equipment. When something goes wrong, the contractor will look to his commercial general liability (CGL) policy to pay the costs of repair or replacement. However, while this policy covers many types of property damage claims, it will not cover every situation.
Before the CGL policy will provide any coverage for claims like these, three things must be true. First, the contractor must be “legally obligated” to pay damages. Liability insurance covers the contractor’s tort liability; that is, liability for negligent acts. Is the injured party claiming that the contractor was negligent in performing the work? If the answer is yes, then the CGL policy may provide coverage. If the claim is for failing to complete the work, however, there is no coverage.
Second, the damage must arise out of an occurrence, as the policy defines that term. The standard CGL form defines occurrence as, “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Therefore, for coverage to apply, the damage must be accidental. If the insurance company determines that there was no accident, it will not provide coverage. For example, the company would not cover a component that simply fails to work after installation.
Third, the accident must result in property damage. The policy defines property damage as “physical injury to tangible property, including its loss of use, and the loss of use of tangible property that is not physically injured. Damage to a third party’s building, for example, is property damage. Loss of that party’s computer data is not, however, because the data is not tangible property.
If property damage arose out of an occurrence and the contractor is legally liable, the policy may still not cover the claim if it falls within the category of faulty workmanship. The policy does not cover a contractor’s liability for property damage to “that particular part” of real property on which the contractor or one of his subcontractors is working if the damage resulted from that work. For example, assume a contractor is repairing the wiring to a chandelier in a banquet hall. During the installation, the chandelier falls and damages the hall’s hardwood floor. The policy will not cover the damage to the chandelier because it was “that particular part” of real property on which the contractor was working. However, it will cover the damage to the floor.
The definition of “that particular part” can be unclear. The insurance company may argue that there is no coverage for a roofing contractor who accidentally starts a fire and burns most of the roof. Is the entire roof “that particular part,” or is it just the one section of the roof where operations were taking place? The policy’s language does not resolve the question.
Another policy provision is much clearer. It states that there is no coverage for damage to “that particular part” of any property that must be restored, repaired, or replaced because the contractor performed his work on it incorrectly. This provision applies to both real and personal property. Therefore, the policy will not cover replacement of the chandelier if it does not work after the contractor repairs it.
A contractor should always address questions about insurance coverage with his insurance agent. An inland marine insurance policy can cover some types of property damage losses not covered by liability insurance. Other types of losses will have to be paid out of the contractor’s pocket. Be sure you know what you can expect from your insurance coverage in all situations on the job site.