Right Result, Dicey Analysis

I generally agree with the result, but I don’t like the court’s analysis in Amin Realty v. Travelers Property Casualty Co., 2006 WL 1720401 (E.D. N.Y. June 20, 2006).  The court found that a general contractor’s liability was uncovered for defective concrete that had to be replaced because of shoddy work of a subcontractor, along with a number of steel beams and supports it had attached to.

The court’s initial reasoning was on the right track: defective workmanship, whether by a general contractor or a subcontractor, is never covered by a Commercial General Liability policy.  The moral hazard problem is simply too great, and if you have any personal experience with contractors, you know what I’m talking about.  Defective work that causes damage to property other than itself, however, is another matter, as are tear-out damages.  Basically, I think it’s not controversial that the  cost of pulling out the bad concrete and putting in new is uncovered.  One of the simplest justifications, which is not discussed in the case, is that a CGL usually does not cover property damage arising from ongoing operations, so no matter what you call the damages, they are not covered.  Other insurance is available for that, including an additional insured endorsement where the subcontractor insurers the general contractor for liabilities arising out of the sub’s negligence for ongoing operations.  For that reason, I’d also say the cost of replacing the steel beams is not covered by the GC’s insurance either.

Even though the court didn’t say it the way I would like, I’d be OK with the case if the court hadn’t muddled up the Business Risk exclusions.  The court relied heavily on an analysis I find to be less than optimal: that the entire building was the general contractor’s "product," and fell under the "Your Product" exclusion.  Damages to any part of the building, such as water infiltration after operations are completed, therefore aren’t covered by the GC’s liability insurance, under the court’s view.  I don’t think a building is the GC’s product or that the GC has any product at all, nor do I think the "Your Work" exclusion applies, partly because the GC doesn’t do any "work" on a construction site and also because of the subcontractor exception to that exclusion, which the court failed to even discuss.  

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