A contractor’s relationship with its insurance company can be precarious, and when it comes time to file a claim, you don’t want any surprises. Incomplete coverage can be costly, a lesson recently learned by general contractor Elite Homes. In a case decided just three months prior, Pavarini Construction Company faced a similar situation with a dramatically different outcome.
Insurance Done Right
Pavarini Construction Company, working as general contractor for a for a condominium project, hired subcontractors and suppliers to complete work on masonry walls and to reinforce steel supports. The work completed by the subcontractors was sub-par and led to serious damage to the building. Pavarini repaired the faulty work, and in doing so incurred costs to the tune of $25M. When Pavarini filed claims with its insurers, American Home Assurance Company and ACE American Insurance Company, coverage was denied. ACE did eventually pay $2M in claims, however.
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Pavarini brought an action against the insurers, claiming that it was entitled to damages in the amount of the repair work done to the building.
The court agreed with Pavarini, citing that the defective work by the contractors was protected by its CGL policy. While “your work” was excluded from coverage, work provided by subcontractors was an exception to the exclusion.
Insurance Done Wrong
Elite Homes was hired as general contractor to complete a single family home in Jacksonville, Florida. The subcontractor Elite hired to complete windows on the home did shoddy work, producing defective windows which led to water intrusion and damage to the home. The property owner sued Elite for damage to the structure of the house. When Elite tendered a claim to its insurer, Auto-Owners Insurance, the insurer claimed it had no duty to defend against the homeowner’s claims.
Elite filed suit against the insurer claiming Auto-Owners did in fact owe Elite a duty to defend.
The court found in favor of Auto-Owners. Though the damage to the property was caused by defective work performed by the subcontractor, which is covered by standard form CGL policies in Florida, Elite’s policy with Auto-Owners did not provide for coverage.
The policy Elite held with Auto-Owners differed from the standard form in that Elite did not have an exception for work done by subcontractors to the “your work” exclusion. Simply put, while general contractors are not insured in the event they produce faulty work, they are typically insured against deficient work of their subcontractors. Had Elite required the subcontractor exception in its CGL policy, it could have avoided the cost and headache of litigation.
Pay close attention to your CGL policy. It can be boring and tedious work, but the repercussions of signing a policy you are unfamiliar with can be costly. Courts tend to favor insureds when there is ambiguity regarding coverage, but clear language within the policy is tough to overcome. Standard CGL policies in Florida offer exclusions for “your work,” but an exception regarding work done by subcontractors is also a part of the standard form. Here, because Elite Homes did not obtain proper exceptions to the “your work” exclusion, it opened itself up to liability for any defective work from a subcontractor. Pavarini Construction had adequate protection under its CGL policy, and it was entitled to full protection.