What if the "Your Work" Exclusion is Inapplicable? ISO Classification and Construction Defect Claims.
February 14, 2023 —
David Humphreys - Carson Law Group, PLLCThis article was first published by the National Association of Home Builders (NAHB) on their NAHBNow blog
One of the risks faced by a residential builder is that, following completion of construction, the homeowner may assert a claim against the builder for damage to the home caused by an alleged construction defect. One of the ways a builder manages the risk of such construction defect claims is by purchasing commercial general liability (“CGL”) insurance.
A builder’s CGL policy covers those sums the builder is legally obligated to pay as damages because of bodily injury or property damage caused by an “occurrence,” that is, damage that is accidental rather than being expected or intended by the builder, so long as the claim does not fall within any of the policy’s several “exclusions” from coverage.
When faced with a construction defect lawsuit, our builder clients are often surprised—and dismayed—when their CGL insurer denies coverage and refuses to defend the builder. However, builders shouldn’t take their insurer’s denial of coverage at face value. This article discusses a new argument we recently discovered that has been a game-changer for our builder clients who were denied coverage in construction defect cases.
Whether coverage exists always depends on the specific language of the particular CGL policy, and courts generally construe exclusions against insurers. This allows experienced coverage attorneys to, at times, successfully challenge declinations of coverage and, at a minimum, convince insurers to pay for the builder’s defense.
A typical CGL policy provides products-completed operations coverage, which is sought by businesses that face potential liability arising out of the products that they have sold or operations that they have completed. Products-completed operations coverage allows builders to obtain many years of coverage for a completed project. Over the years, insurers have added to their policies modifications and exclusions that limit their exposure for claims that fall under that coverage.
Exclusion (l) or the “your work” exclusion, will often exclude coverage for a latent defect claim against the builder. A standard “your work” exclusion provides:
This insurance does not apply to: . . . “[p]roperty damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
This “your work” and similar exclusions are designed to limit coverage for business risks that are within the contractor’s own control; e.g., a claim that the contractor caused damage to the contractor’s own work. These exclusions apply both to ongoing and completed projects, which can leave a builder unprotected from lawsuits for years after a project is completed.
However, builders who are classified on the declarations page with Code 91580 Contractors— Executive Supervisors or Executive Superintendents, may not be subject to the “your work” exclusion. 91580 is a common classification assigned to builders during insurance underwriting. This classification falls into what is referred to as “dagger class” or “plus sign class,” which indicates that Products and/or Completed Operations coverage is
included as part of and not separate from the Premises/Operations coverage (emphasis added).
It has been noted that dagger” and “plus sign” classifications create confusion because of the seeming contradiction between policy wording and coverage rules.* The CGL policy seems to expressly exclude products and/or completed operations losses for “dagger” or “plus sign” classes. In the definitions section we find the following:
“Products-completed operations hazard”: . . .b. Does not Include “bodily Injury” or “property damage” arising out of:. . . (3) Products or operations for which the classification, listed In the Declarations or in a policy schedule, states that products- completed operations are subject to the General Aggregate Limit.”
This apparent exclusionary language, however, must be read in conjunction with the Insurance Services Office’s (ISO) Rule 25.F.1.:
Rule 25. CLASSIFICATIONS
F. Symbols
1. Plus Sign
A plus sign when shown in the Premium Base column under General Liability insurance in the Classification Table - means that coverage for Products and/or Completed Operations is included in the Premises/Operations coverage at no additional premium charge. When this situation applies, the classification described in the policy schedule or Declarations must state that:
“Products-completed operations are subject to the General Aggregate Limit” to provide Products and/or Completed Operations coverage(s).
When read together then, the exclusionary wording in the policy definition removes any product or operation loss subject to the “dagger” or “plus sign” classification from the definition of Products Completed Operations Hazard. Under the dagger or plus sign classification of Rule 25, coverage for products and/or operations is included in the premises operations coverage. Consequently, a loss can no longer be defined as a product completed loss, and as a result it is no longer subject to the “your work” exclusion.
Recall that the standard “your work” exclusion quoted above excludes coverage for “property damage” to “your work” “arising out of it or any part of it
and included in the “products-completed operations hazard”.” Here, we emphasize “and” because the “your work” exclusion applies only to property damage that is also included in the “products-completed operations hazard.” Since property damage claims arising under “plus sign” classifications are expressly excluded from the “products-completed operations hazard” (they are included in the premises/operations coverage) the “your work” exclusion simply does not apply. This means that, if your CGL insurer denies your construction defect claim based on the “your work” exclusion, do what the title of this article suggests: Check your ISO classification! If 91580 “Executive Supervisors or Executive Superintendents” is listed on your Declarations page, you may be in luck.
This new ISO classification-based coverage argument will likely also apply to other exclusions and endorsements that CGL insurers routinely rely on in denying coverage in construction defect cases. We recently successfully challenged a coverage denial based on the following “prior work” exclusionary endorsement:
”This insurance does not apply to ‘your products’ or ‘your work’ completed prior to” a certain date listed in the endorsement. . .
“Specifically, this insurance does not apply to. . . “property damage”. . . included in the ‘products-completed operations hazard’ and arising out of. . . ‘your work’ performed by or on behalf of you prior to the date shown above.”
Again, this endorsement incorporates the “products-completed operations hazard,” which allowed us to successfully argue that the exclusion was inapplicable to a builder classified as a 91580 “Executive Supervisor or Executive Superintendent.”
To our knowledge, this new ISO classification-based coverage argument has not yet been addressed by a court. Our recent successes with it have concluded with favorable settlements for our clients. Accordingly, for now, the ISO classification-based argument is a powerful new tool to challenge denials of coverage in construction defect cases where the builder is classified under 91580 “Executive Supervisors or Executive Superintendents.”
David Humphreys is a Partner at Carson Law Group, PLLC, and has been representing construction contractors, subcontractors, and owners for more than two decades in Mississippi and throughout the Southeast.
*See “Dagger” or Plus Symbol Classes: What They Mean, Chris Boggs - Virtual University | “Dagger” or Plus Symbol Classes: What They Mean) (independentagent.com)
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New York’s Second Department Holds That Carrier Must Pay Judgment Obtained by Plaintiff as Carrier Did Not Meet Burden to Prove Willful Non-Cooperation
November 23, 2020 —
Craig Rokuson - Traub LiebermanIn the recent case of DeLuca v. RLI Insurance Company, 2020 WL 5931054 (October 7, 2020), the Supreme Court, Appellate Division, Second Department held that RLI had a duty to pay a judgment obtained by an underlying plaintiff against RLI’s insured, MLSC. The underlying plaintiff brought the action directly against the carrier after obtaining a judgment against MLSC, and when the judgment remained unsatisfied, serving RLI with the judgment. As an initial matter, the court found that the direct action by the plaintiff was proper under New York Insurance Law 3420(a), which allows for an injured plaintiff to maintain a direct action against a carrier if a judgment against that carrier’s insured remains unsatisfied for a period of 30 days and the carrier is served with that judgment. In that event, the plaintiff steps into the shoes of the insured and is entitled to the rights of the insured (and is also subject to the carrier’s coverage defenses).
Reprinted courtesy of
Craig Rokuson, Traub Lieberman
Mr. Rokuson may be contacted at crokuson@tlsslaw.com
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Feds Outline Workforce Rules for $39B in Chip Plant Funding
April 10, 2023 —
James Leggate - Engineering News-RecordSemiconductor chip producers must pay their construction workforce prevailing wages and will be “strongly encouraged” to use project labor agreements if they want a piece of the $39 billion available in federal funding to support fabrication plant construction, expansion or modernization projects, U.S. Commerce Secretary Gina Raimondo says.
Reprinted courtesy of
James Leggate, Engineering News-Record
Mr. Leggate may be contacted at leggatej@enr.com
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Understanding Liability Insurer’s Two Duties: To Defend and to Indemnify
December 26, 2022 —
David Adelstein - Florida Construction Legal UpdatesA liability insurer has two duties that are the crux of a liability policy: the duty to defend the insured in legal actions and the duty to indemnify the insured from losses covered under the policy. Many times, policyholders (insureds) do not fully understand or appreciate these two important duties. They need to and this is why having private counsel assist with coverage-related considerations is an absolute must.
An insurers’ duty to defend is separate from its duty to indemnify. A recent opinion out of the Middle District of Florida in Progressive Express Ins. Co. v. Tate Transport Corp., 2022 WL 16963815 (M.D.Fla. 2022) clarifies the distinction between these duties with a focus on an insurer’s initial duty — the duty to defend. Please read below so you can have more of an appreciation of these duties. The court does a good job discussing Florida law with the emphasis on when an insurer’s initial duty to defend kicks-in:
Duty to Defend
Under Florida law, “an insurer’s duty to defend its insured against a legal action arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage.” The duty to defend is a broad one, broader than the duty to indemnify, and “[t]he merits of the underlying suit are irrelevant.” We determine whether an insurer has a duty to defend its insured based only on “the eight corners of the complaint and the policy,” and only as the complaint’s alleged facts are “fairly read[.]” The “facts” we consider in evaluating the duty to defend come solely from the complaint, regardless of the actual facts of the case and regardless of any later developed and contradictory factual record. “Any doubts regarding
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
Potential Coverage Issues Implicated by the Champlain Towers Collapse
March 21, 2022 —
Theresa A. Guertin & Holly A. Rice - Saxe Doernberger & Vita, P.C.In June 24, 2021, the Champlain Towers South in Surfside, Florida collapsed, killing nearly 100 individuals (the “Collapse”). As experts uncover more information regarding the cause of the Collapse, those individuals who have filed lawsuits as well as the potentially culpable defendants are looking to insurers for coverage of their bodily injury and property damage claims.
Contractors, engineers, and other professionals are or anticipate being sued for their roles in the Collapse. Those professionals have professional liability policies and/or director and officer liability policies. Likewise, the condominium association’s commercial general liability (CGL) policies and its business property policy may have a duty to defend and/or indemnify their insureds as well. Finally, individual unit owners/renters may look to their homeowners’ insurance, auto insurance, health insurance, and/or life insurance policies for coverage.1
The potential breadth of insurance coverage issues raised by the Collapse is beyond the scope of this article. The article will consider some concerns that could impact insurance coverage under a standard CGL policy in the case of a building collapse.
Reprinted courtesy of
Theresa A. Guertin, Saxe Doernberger & Vita, P.C. and
Holly A. Rice, Saxe Doernberger & Vita, P.C.
Ms. Guertin may be contacted at TGuertin@sdvlaw.com
Ms. Rice may be contacted at HRice@sdvlaw.com
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Nine Gibbs Giden Partners Listed in Southern California Super Lawyers 2022
February 14, 2022 —
Gibbs Giden Locher Turner Senet & Wittbrodt, LLPPremiere law firm Gibbs Giden Locher Turner Senet & Wittbrodt, LLP announced that 9 of the firm's partners have been selected by their peers for inclusion in the 2022 Southern California Super Lawyers list.
The Super Lawyers lists are issued by Thomson Reuters. These lists honor no more than 5% of licensed attorneys in each state, based on peer recognition and professional achievements.
The following Gibbs Giden attorneys have been selected to the 2022 Southern California Super Lawyers list:
LOS ANGELES
Barbara Gadbois – Construction Law
Sara Kornblatt – Construction Law and Litigation
William (Bill) Locher - Real Estate and Business Law
Ted Senet – Insurance and Construction Law
Glenn Turner – Construction Law and Litigation
Richard Wittbrodt – Construction Law and Litigation, AAA Mediator/Arbitrator
IRVINE
Philip Zvonicek – Business, Corporate, Construction, Insurance Law
WESTLAKE
Jason Adams – Construction and Insurance Law
Christopher Ng – (Managing Partner) Construction and Business Law
Gibbs Giden understands the complex challenges companies face in today’s competitive business environment. From our roots in construction law to our evolution into a premier law firm serving the diverse needs of the business community, we provide the insight and advice our clients need to position themselves for the future.
www.gibbsgiden.com LOS ANGELES | IRVINE | SAN JOSE | WESTLAKE | LAS VEGAS
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Required Contract Provisions for Construction Contracts in California
October 08, 2014 —
Garret Murai – California Construction Law BlogOne question I get fairly often when drafting or reviewing construction contracts is what provisions, if any, are required in construction contracts in California. This is, of course, different than what should be included in a construction contract which is a post for another day. So, here you go:
Provisions Required in All Construction Contracts
There’s only one requirement applicable to all construction contracts in California. And, that is, that you must include your California contractor’s license number if you are performing or bidding on work requiring a license. California Business and Professions Code section 7030.5 requires that licensed contractors include their license number in “(a) all construction contracts; (b) subcontracts and calls for bid; and (c) all forms advertising, as prescribed by the register of contractors, used by such person.”
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Garret Murai, Kronick Moskovitz Tiedemann & GirardMr. Murai may be contacted at
gmurai@kmtg.com
Housing Inventory Might be Distorted by Pocket Listings
July 23, 2014 —
Beverley BevenFlorez-CDJ STAFFNBC News reported that pocket listings, or unadvertised listings, may be hiding the true number of homes on the market. “A so-called pocket listing is when the real estate agent signs a listing agreement with a seller but does not advertise it widely or put it in a multiple listing service, where other agents and buyers can see it,” according to NBC News.
Lawrence Yun, chief economist for the Realtors, told NBC News that he believes the perceived shortage of inventory “is due to the prevalence of pocket listings in some markets."
Pocket listings aren’t illegal. There aren’t any “hard numbers” for these unadvertised listings, and so the number of actual listings is based on conjecture by realtors.
"The conditions are ripe for this kind of approach to take," Nela Richardson, chief economist at Redfin, a real estate brokerage, told NBC News. “When there is limited inventory, an agent is able to convince a seller, because there is so much demand for housing that maybe as many eyeballs don’t need to see your home as in a traditional market.”
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