Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance

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The Connecticut Supreme Court’s Summer of Insurance — Part II: GL Policies May Provide Coverage for Some Damage Caused by Defective Construction

Carbon monoxide may cause death and such, but not “property damage”

When a general contractor seeks coverage under its general liability policy for losses resulting from defective work on a construction project, disputes inevitably follow.  Typically contested issues include whether there was an “occurrence” and “property damage” as those terms are defined by GL policies and whether the standard GL exclusion for “your work” bars coverage.

The Connecticut Supreme Court addressed all of these issues for the first time in a case arising from the renovation of a UConn housing complex.  After the work was done, UConn discovered that defects in newly installed hot water heaters and vents were causing, among other problems, elevated carbon monoxide levels in the renovated buildings.  UConn demanded that the contractor make it whole, the contractor’s GL carrier denied coverage for the claim, and the contractor sued the insurer in Alabama, where the case landed in federal district court.  That court asked the Connecticut Supreme Court, via a certified question, for guidance on whether, under Connecticut law, damages caused by defective construction or faulty workmanship fall within GL coverage.

The Court replied that it depends upon the facts.  It held that when defective construction or faulty workmanship is unintended, it is an “occurrence” (defined by GL policies as an “accident”).  The Court further held that if the defective construction or faulty workmanship causes physical damage to non-defective property, that harm qualifies as “property damage.”  The Court distinguished such harm from the defective construction itself, work required to remedy the defective work and consequences of the defective work (such as the release of carbon monoxide) that do not result in a physical, tangible alteration.  None of these qualify as “property damage” in the Court’s view.  Finally, the Court held that the “your work” exclusion will bar coverage for defective work by the insured contractor.  If, however, the exclusion has a “subcontractor exception” – as the policy at issue in the UConn case did – harm to other property caused by defective work done by subcontractors on the insured’s behalf will be covered.

The decision will lead to a wave of trial court rulings refining the distinctions drawn by the Court, including the lines between defective work and harm caused by that work to non-defective portions of the project and between physical, tangible alterations and the mere incorporation of a defective part.  The case is Capstone Building Corporation v. American Motorists Insurance Company.

About the Author

Anne Robbins – Counsel

Anne represents insurers and insureds in complex insurance coverage and bad faith cases.


Posted In: Construction Defects

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