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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ASCE Statement on National Dam Safety Awareness Day - May 31
June 06, 2022 —
Dennis D. Truax, President, American Society of Civil Engineers (ASCE)Washington, DC. – Nationwide, more than 92,000 dams protect communities across the country, providing numerous services including irrigation, water conservation, and flood protection. Advocating for the safety, robustness, and sustainability of our nation's dams is a top priority for ASCE as we recognize May 31 as National Dam Safety Awareness Day.
National Dam Safety Awareness Day is observed in remembrance of the "Johnstown Flood" on May 31, 1889. Failures of the South Fork Dam near Johnstown, PA, resulted in the death of more than 2,200 people. This tragedy serves as an illustration of the critical importance of effectively maintaining and managing our nation's dams and ensuring that adequate dam safety measures remain in place to avoid these preventable tragedies.
ASCE's
2021 Report Card for America's Infrastructure gave the nation's dams a "D" grade. Of the nation's 92,000 dams, more than 15,000 are classified as having "high hazard potential", meaning that dam failure would result in the loss of life. While increased state investment in dam safety programs has allowed for better assessment of dams and the ability to identify rehabilitation needs as well as potential hazards, increased federal investment is still needed to ensure the safety of dams nationwide.
ABOUT THE AMERICAN SOCIETY OF CIVIL ENGINEERS
Founded in 1852, the American Society of Civil Engineers represents more than 150,000 civil engineers worldwide and is America's oldest national engineering society. ASCE works to raise awareness of the need to maintain and modernize the nation's infrastructure using sustainable and resilient practices, advocates for increasing and optimizing investment in infrastructure, and improve engineering knowledge and competency. For more information, visit www.asce.org or www.infrastructurereportcard.org and follow us on Twitter, @ASCETweets and @ASCEGovRel.
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Why Being Climate ‘Positive’ Is the Buzzy New Goal of Green Building
December 10, 2024 —
Olivia Rudgard - BloombergThe three buildings, dotted around Norway, couldn’t look more different: a soaring timber-and-concrete obelisk in Porsgrunn; a squat, two-story Montessori school on the edge of a forest in Drøbak; and a concrete and glass wedge-shaped office in Trondheim, just a few hundred miles from the edge of the
Arctic Circle. But they share a distinctive feature. Each has a roof perfectly tilted to squeeze out every possible drop of solar energy.
They are called
Powerhouses, and the initiative behind them claims they are all “energy positive”: The upfront energy “cost” of each building, and that of later demolition and disposal, is expected to be made back over the building’s lifetime. Powerhouses sometimes draw from the grid, especially in winter, but in the long Nordic summer days they give back many times over, overspilling excess solar energy into surrounding homes and businesses.
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Olivia Rudgard, Bloomberg
Survey: Workers Lack Awareness of Potentially Hazardous Nanomaterials
December 11, 2018 —
Scott Van Voorhis – Engineering News-RecordMicroscopic nanoparticles are part of the mix in nearly 600 construction products. The particles add strength, durability and other desired characteristics.
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Scott Van Voorhis, ENRENR may be contacted at
ENR.com@bnpmedia.com
No Coverage Under Exclusions For Wind and Water Damage
March 30, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Mississippi Supreme Court affirmed the granting of summary judgment to the insurer that there was no coverage under the all risk policy for loss caused by wind and water. Porter v. Grand Casino of Miss., Inc., 2016 Miss. LEXIS 3 (Miss. Jan. 7, 2016).
Cherri Porter's home was destroyed during Hurricane Katrina. The destruction occurred when the barge operated by Grand Casino of Mississippi came loose from its moorings and collided with her home.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
New California Standards Go into Effect July 1st
July 01, 2014 —
Beverley BevenFlorez-CDJ STAFFGarret Murai on his California Construction Law Blog reminded readers that the California Building Energy Efficiency Standards and the New Listing Law Requirements goes into effect on July 1st of this year.
According to Murai, the new “California Building Energy Efficiency Standards include: (1) the 2013 California Energy Code, Part 6, (2) the 2013 California Administrative Code, Chapter 10, Part 1 and (3) the energy provisions of the 2013 CALGreen, Part II, Title, 25, of the California Code of Regulations.”
Furthermore, Murai pointed out that “Assemby Bill 44, which amended the Subletting and Subcontracting Fair Practices Act, also known as the Listing Law, was signed into law,” which requires prime contractors "to disclose the contractors license numbers of subcontractors performing work in excess of 0.5% of the prime contractor’s total bid or, in the case of bids for the construction of streets, highways, or bridges, in excess of 0.5% of the prime contractor’s total bid or $10,000, whichever is greater.”
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Product Manufacturers Beware: You May Be Subject to Jurisdiction in Massachusetts
July 05, 2023 —
Timothy Keough & Audrey Schoenike - White and Williams LLPSay you are a Floridian product manufacturer that does business in Massachusetts and you receive a Complaint filed in Massachusetts that alleges your product injured a Nova Scotian resident in Nova Scotia. You know that the only time that product was in Massachusetts was during its transport up the eastern seaboard to its final destination at a retailer in Nova Scotia. Can you be hailed into a Massachusetts court for this accident? The answer is seemingly not so simple following the Supreme Judicial Court’s holding in Doucet v. FCA US LLC.
On June 8th, the Massachusetts Supreme Judicial Court, in Doucet v. FCA US LLC, held that FCA US LLC is subject to jurisdiction in Massachusetts for a personal injury action arising out of a motor vehicle accident that occurred in New Hampshire.
No. SJC-13354, slip. op. (Mass. June 8, 2023). The vehicle had been purchased in New Hampshire by a New Hampshire resident. The Court explained that federal due process does not require a causal connection between a company’s business dealings with the jurisdiction and the injury; instead, a mere relationship between the business dealings and the injury will suffice to establish jurisdiction. Because the vehicle at issue was first sold in Massachusetts and FCA US LLC had extensive business dealings unrelated to the vehicle in question in Massachusetts, the Court concluded that a strong enough relationship existed between FCA US LLC, Massachusetts, and the litigation for jurisdiction to exist.
Reprinted courtesy of
Timothy Keough, White and Williams LLP and
Audrey Schoenike, White and Williams LLP
Mr. Keough may be contacted at keought@whiteandwilliams.com
Ms. Schoenike may be contacted at schoenikea@whiteandwilliams.com
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Contractor’s Unwritten Contractual Claim Denied by Sovereign Immunity; Mandamus Does Not Help
September 22, 2016 —
David R. Cook Jr. – AHHC Construction Law BlogIn a very well-reasoned opinion, the Supreme Court of Georgia upheld the denial of a contractor’s unwritten-contract claim against a county based on sovereign immunity. Based on an alleged oral contract, Contractor built a sewer pumping station for the County in exchange for an interest in the station’s pumping capacity. When the County denied Contractor’s demand for an interest, he filed suit.
As noted in many prior posts, the Georgia constitution reaffirms sovereign immunity of the state – which the courts interpret to include counties. One common exception in the public works area is the Constitution’s “ex contractu clause,” which waives sovereign immunity for claims based on written contracts. Of course, a precondition to the waiver of sovereign immunity is the existence of a written contract – which Contractor did not have.
Applying these rules, the court affirmed the denial of Contractor’s claims based on contract and quasi contract. In the absence of a written contract, there can be no contractual claim against the County. The same rule applies for quasi-contractual claims.
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David R. Cook, Autry, Hanrahan, Hall & Cook, LLPMr. Cook may be contacted at
cook@ahclaw.com
