In February of each year, AGC holds its annual meeting on construction risk management. In conjunction with the meeting held in February of 2007, Patrick J. Wielinksi and his associate, Kelly S. Shoulders, undertook a broad survey of the case law on the insurance coverage for defective workmanship under the commercial general liability (CGL) policies that AGC members typically purchase. Below are the state-by-state results of that survey.

Legal research is far from an exact science. Determining a state's position on coverage for defective workmanship may require the exercise of considerable judgment, particularly with regard to the cases that a nationwide survey should include. Please appreciate that these survey results are not all-inclusive. Rather, they include what appear to be the most frequently cited cases on coverage for defective workmanship in each respective state.

Please also note that some states appear to have little or no case law on these issues.

Background

Insurance coverage for defective workmanship typically turns on the answers to two questions: (1) whether the incorporation of defective workmanship into a project constitutes an "occurrence" and (2) whether the property damage caused by that defective workmanship is subject to certain "business risk" or "property damage" exclusions in the policy.

The CGL policy underwent a major revision in 1986. Among other things, the changes sought to clarify and to simplify the "property damage" exclusions. The changes were not, however, intended to change the exclusions' meaning or effect. To understand how the "property damage" exclusions operate and apply to claims for defective workmanship, AGC members have to consider the history and the development of the policy form.

For the most part, the currently used form is the form promulgated in 1986. The scope of this form's coverage for defective workmanship is equal to the scope of the "Broad Form Property Damage Endorsement" ("BFPDE") that insurance carriers previously provided to contractors (by attaching it to the to the 1973 policy form). While CGL coverage for most contractors has been written on the 1986 form since regulators approved it, certain long-tail or delayed injury claims may still involve policies written on the 1973 or even older forms that may or may not include a BFPDE. Moreover, current CGL coverage written by London surplus lines or non-admitted carriers may be on the 1973 form.

The BFPDE form was attached to 1973 and earlier versions of the CGL policy forms in order to expand the scope of coverage provided to contractors. Highly simplified, the BFPDE expanded this coverage by modifying the Work Performed Exclusion in the CGL policy to indicate that it would not apply to work performed "on behalf of" the contractor, i.e., by subcontractors. The language actually expanding coverage is often called the "subcontractor exception." The exception is even more explicitly stated and clarified by the 1986 revisions to the CGL policy form (in Exclusion l, the Your Work Exclusion).

The BFPDE also modified the "care, custody or control" and the "owned or occupied premises" exclusions in the 1973 and earlier forms, replacing them with "faulty workmanship" and "operations" exclusions limited to the "particular part" of property on which the insured is performing operations at the time of the property damage, or that must be replaced because of the insured's faulty workmanship. The 1986 revisions to the CGL policy maintained substantially the same formulation for these exclusions.

For the most part, the cases included in the survey results are based on the 1986 form. However, the leading cases in some states rests on the 1973 form, and the rationale for those cases may carry over to cases based on the 1986 form. For ease of reference, the more important cases in this area are flagged with a double asterisk.

Quick Reference to Key Provisions

For a quick reference to the key provisions found in the 1973 and the 1986 policy forms (that impact construction defect claims), simply click here.

Survey Results.

For a list of the cases found in a particular state, simply click on that state.