"Rip and Tear" Coverage
The Problem:
Construction projects often result in damages claims for construction defects. Securing insurance coverage for those claims depend on many factors, including the specific facts and damages at issue, and which state’s law governs. The standard commercial general liability policy provides coverage for “property damage” that is caused by an “occurrence.” Courts across the nation disagree on whether property damage caused by defective construction work is an “occurrence” as that term is defined in standard liability policies.
For example:
A concrete contractor installs a loading dock that is found to lack the required tensile strength. The General Contractor demands that work be removed and redone to specifications – however, the actual Bodily Injury or Property Damage that would trigger a Liability claim does not exist.
The availability of coverage does not end with the definition of “occurrence”, however. Numerous exclusions in standard general liability policies may impact coverage for construction defect claims, including:
- The “expected or intended” exclusion, which precludes coverage for damage that is “expected or intended from the standpoint of the insured.”
- The “Your Work” exclusion, which precludes coverage for repair or replacement of the insured’s work if the damage occurred after completion of the project. This exclusion does not apply, however, if the work out of which the damage arises was performed by a subcontractor.
- Exclusion J(5), which precludes coverage for damage to “that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations.”
- The “Loss of Use” exclusion, which precludes coverage for loss of use of property that has not been physically injured but cannot be used because it incorporates the insured’s defective work.
- The “Recall” exclusion, which precludes coverage for damages claimed for “any loss, cost or expense … incurred for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of ‘Your Work’ (which is defined to include work done on the insured’s behalf) if such work is withdraw from use because of a known or suspected defect, deficiency, inadequacy, or dangerous condition in it.”
The Solution:
The surest way to obtain coverage for “Rip & Tear” is via the Contractor’s Errors and Omissions Endorsement.
1. Covers damage to “your work” due to negligence, errors or omissions.
2. Damage must be unintentional (no risky shortcuts).
3. The damage must occur after the job is completed, not during.
4. Coverage is “claims made”, not “occurrence”, and is subject to a Retroactive Date.
5. Work of subcontractors is not covered – only direct work is covered.
Hope you have a safe workday!
Jeff Rosenkilde, CIC
Jeff Rosenkilde, Sr. CIC is a Certified Insurance Counselor with over thirty years of experience insuring small businesses in the Mid – Atlantic Area. His firm, Rosenkilde and Associates, insures over 4,000 policy holders and specializes in business insurance and risk transfer.