A debate has simmered for decades as to whether a standard commercial general liability (CGL) insurance policy covers a contractor for the defective workmanship of its subcontractors. The policies, standardized by an insurance industry group, protect a contractor against property damage caused by an “accident.” The policies expressly exclude coverage for the contractor’s own work. But is the shoddy workmanship of a subcontractor an accident which is covered by the policy? The state courts are almost evenly divided on this issue.
The Indiana Supreme Court, in a contentious 3 – 2 decision, recently ruled that subcontractor workmanship can constitute an accident. The court majority reasoned that if the deficient workmanship had not been foreseeable by the insured prime contractor, then it was accidental. The dissent argued that CGL policies are neither designed nor priced to cover that business risk. The majority was placing Indiana on the wrong side of the national divide.
What do you think? If a contractor wants a guarantee of its subcontractor’s workmanship, shouldn’t it require the sub to furnish a performance bond? If CGL policies are interpreted to cover this risk, won’t they be priced accordingly and become unaffordable? As always, I welcome your comments.
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Bruce Jervis, Editor
Construction Claims Advisor