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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Approaching Design-Build Projects to Avoid (or Win) Disputes
August 07, 2023 —
Stuart Eisler - Construction ExecutiveStakeholders engage in design-build projects believing the collaborative nature better aligns parties' interests and reduces overall risk exposure. Each of the lead parties bases this belief on different factors—the owner sees an opportunity to reduce change-order exposure and improve delivery times, the design-builder (or contractor) aims to control design volatility by ensuring project components match budgeted projections, and the designer intends to benefit by greater constructability review from the design-builder team and often additional time to detail designs. Rarely do design-build parties contemplate claims arising while initiating a project.
This being said, design-build projects carry unique, inherent risks due to the award of often fixed-price contracts utilizing incomplete, preliminary designs. As scopes creep and costs balloon, previously harmonious parties experience discord and lurking claims. While the majority of design-build projects are completed without major dispute, there are strategies available to further avoid disputes and prevail in those that are unavoidable.
Reprinted courtesy of
Stuart Eisler, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Sixth Circuit Lifts Stay on OSHA’s COVID-19 Temporary Emergency Standards. Supreme Court to Review
January 10, 2022 —
Garret Murai - California Construction Law BlogAs we round out the year, here’s a bit of news, with more likely to come, regarding the U.S. Department of Occupational Safety and Health Administration’s (OSHA) COVID-19 Temporary Emergency Standards (ETS).
As we
wrote earlier, on November 4, 2021, OSHA issued its ETS which applies to private employers with 100 or more employees (Covered Employers). Among other things, the ETS requires Covered Employers to have a COVID-19 vaccination policy requiring all employees to be fully vaccinated with certain exceptions, to provide for weekly testing of non-fully vaccinated employees, and to require face coverings. Under the ETS, Covered Employers were required to comply with the ETS other than the testing requirements by December 6, 2021 and to comply with the testing requirements beginning January 4, 2022.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Minnesota Senate Office Building Called Unconstitutional
November 06, 2013 —
CDJ STAFFThe state of Minnesota has plans for a $63 million Senate office building. Not so fast, says a former member of the Minnesota House. Jim Knoblach, the former representative for St. Cloud, has filed a lawsuit claiming that the appropriation for the building violated the state’s constitution.
Funding for the senate office building was included in a tax bill, and Mr. Knoblach claims that violates the state’s requirement that laws have only a single subject. “It was buried deep in the tax bill and passed on the chaotic last day of session,” said Mr. Knoblach.
In Minnesota, public works projects must reach 60% approval in both houses, while the tax bill only required 50% approval. State Republicans oppose the building.
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2021 Real Estate Trends: New Year, New Reality—A Day of Reckoning for Borrowers and Tenants
February 08, 2021 —
Robert J. Grados & Adam Weaver - Gravel2Gavel Construction & Real Estate Law BlogOn the one-year anniversary of China’s Wuhan lockdown, COVID-19 has become a part of everyday life and as we enter the new year, real estate borrowers and lenders alike will need to understand this new normal and face the reality that is fast approaching. In 2020, as the COVID-19 pandemic swept across the United States, many state and local governments instituted eviction moratoria and other protections for real estate tenants and borrowers. These protections created a window of opportunity for tenants and borrowers to negotiate reasonable solutions with their respective landlords and lenders regarding rent and debt payments amid the COVID-19 pandemic. This temporary period of restricted remedies also allowed courts to analyze legal arguments on how the COVID-19 pandemic impacts the real estate industry.
However, with court rulings forthcoming and many of these eviction protections set to expire in 2021, landlords and tenants as well as borrowers and lenders will be forced to have discussions regarding the realities of their industry and their ability to pay their respective rents and mortgages amid the ongoing COVID-19 crisis. Throughout 2020, lenders and landlords were forced to accommodate workout negotiations as their ability to evict or foreclose upon defaulting tenants or borrowers was prohibited. Many commercial real estate parties were able to come to agreements on what borrowers and tenants were able to pay, given the impact of the COVID-19 pandemic on their respective industries. As the legal protections are rolled back and the leverage shifts back into the hands of the lenders and landlords, we will likely see a trend of aggressive landlords and lenders and an increased number of evictions and foreclosures, especially in industries that are most vulnerable to the COVID-19 pandemic: retail and hospitality.
Reprinted courtesy of
Robert J. Grados, Pillsbury and
Adam Weaver, Pillsbury
Mr. Grados may be contacted at robert.grados@pillsburylaw.com
Mr. Weaver may be contacted at adam.weaver@pillsburylaw.com
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Housing Markets Continue to Improve
February 11, 2013 —
CDJ STAFFThe National Association of Home Builders reports that for a sixth consecutive month there has been an increase in the number of housing markets that have shown improvement. The January report saw 242 improving markets, which in February grew to 259. The NAHB notes that there are now improving markets in every state, “suggesting that the housing recovery has substantial momentum.”
Not all markets showed continued improvement. Three metropolitan areas were dropped from the list of improving markets, but another twenty were added. The NAHB has been tracking this data since September 2011, when there were only twelve improving markets through the whole country.
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CDJ’s #4 Topic of the Year: KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles County
December 31, 2014 —
Beverley BevenFlorez-CDJ STAFFKB Home, another case that clarified California’s SB 800, was analyzed by Amy Kuo Alexander of Gordon & Rees LLP in her article on “New Developments Related to SB 800.”
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KB Home was also discussed by Cvitanovic and Stefco of Haight Brown & Bonesteel in their article on Burch.
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Differing Site Conditions: What to Expect from the Court When You Encounter the Unexpected
September 05, 2022 —
Margarita Kutsin - Ahlers Cressman & Sleight[
1]Seattle Tunnel Partners (“STP”), a joint venture of Dragados USA and Tutor Perini, entered into a $1.4 billion contract with the Washington State Department of Transportation (“WSDOT”) to replace the Highway 99 viaduct. In December 2013, a tunnel boring machine (“TBM”) bearing the moniker “Bertha,” then the largest TBM ever built, measuring 425 feet long and 57 feet in diameter, struck an underground pipe. Shortly after the impact, Bertha overheated and eventually could no longer make forward progress. A massive repair effort ensued causing a 2.5-year delay in reaching substantial completion.
WSDOT sued STP for the delay, seeking liquidated damages of $57 million. In response, STP argued its delay was excusable because it was caused by Bertha’s impact with the pipe, and the steel well casing was a Differing Site Condition (DSC) undisclosed in the contract documents. STP asserted counterclaims against WSDOT, alleging breach of contract and seeking $300 million in damages. Ultimately, a jury found that the steel well casing on the pipe was not a DSC, foreclosing STP’s excusable delay defense and counterclaims, and resulting in a $57 million verdict, plus interest, in favor of WSDOT.
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Margarita Kutsin, Ahlers Cressman & SleightMs. Kutsin may be contacted at
margarita.kutsin@acslawyers.com
