Fourth Circuit: CGL Covers Damages From Subcontractor’s Defective Work, Not Work Itself

French v. Assurance Company of America, 2006 WL 1099471 (April 27, 2006) is not an exceptional case in terms of its result, but its analysis of the "Your Work" exception to a Commercial General Liability policy is one of the best and clearest I’ve seen.

In the case, decided under Maryland law, a general contractor hired a subcontractor to side a house with EIFS — Exterior Insulation and Finishing System.  For those who haven’t encountered this, it is basically a styrene foam board covered with stuff that is supposed to look like stucco.  There are a huge number of cases involving water intrusion from applications of EIFS.  The French court found that the general contractor’s CGL covered it for property damage to the home from water intrusion, but not the cost of repairing the defective EIFS itself.  This is the result most jurisdictions will reach, although the lack of coverage for repair often becomes somewhat academic because the defective work has to be torn off to do repairs underneath, and the replacement can thus become "covered" in that way — as tear-off damage.

This case has an excellent analysis of why neither a general contractor’s nor a subcontractor’s defective work is covered under the general contractor’s CGL, with an explanation that goes beyond the usual "performance bond" reasoning.  The case also has a good explanation of the way in which insurers expanded the coverage of a CGL to meet demands from contractors who wanted broader coverage.  Some people focus only on exclusions that have been added to CGLs and other policies in recent years, without realizing that, in the broad sense, insurers are selling more insurance to cover more risk than ever.  Risk is the ocean that insurers swim in, and the more of it, the more demand for their products.

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