Contractors and subcontractors that work on construction projects should, and generally do, maintain commercial general liability policies (“CGL Policies”). Owners absolutely want their contractor and the subcontractors to be sufficiently insured in the event a claim is made either against them or damages or defects occur to their project. Likewise, the contractor wants its subcontractors to be sufficiently insured for the same reasons. Contractors and subcontractors, jointly, want CGL Policies so that if a claim is made or they are sued the insurer defends their interests and, hopefully, pays insurance proceeds to resolve the claim.
Insurers, however, are not always keen on paying claims and rely on various exclusions in policies that are applicable to the circumstances of the claim. In other words, if there is no coverage for the claim based on an exclusion, the insurer will appropriately rely on an exclusion in the CGL policy. As it pertains to CGL Policies, there are two important exclusions insurers rely on when a claim is asserted against a contractor or subcontractor for construction defects. These exclusions are known as the j(5) and J(6) exclusions and exclude damage to:
j(5) That particular part of real property on which you…are performing operations, if the property damage arises out of those operations; or
j(6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.
A contractor or subcontractor that reviews their CGL Policies will find the j(5) and j(6) exclusions to be substantially similar to the above. While contractors typically do not self-perform work, subcontractors typically do self-perform all or a substantial part of the work.
A recent case, Wilshire Insurance Co. v. Birch Crest Apartments, Inc., 2011 WL 3586228 (4th DCA 2011), bolsters insurers’ arguments to exclude coverage under a self-performing subcontractor’s CGL Policy under the (j)5 and j(6) exclusions. In this case, a painter performing work on an apartment project spattered paint on glass doors and windows. The painter tried to remove the paint spatter, and in the process of doing so, damaged the glass doors and windows. The owner sued the painter and the painter consented to a judgment and assigned its rights under its CGL Policy to the owner. This allowed the owner to sue the insurer directly and assert certain claims against it.
The issue in this case was whether the painter’s damage to the glass windows and doors were covered under the policy, or, conversely, whether coverage was excluded pursuant to the j(5) and j(6) exclusions under the policy. The Fourth District Court of Appeal held that these exclusions barred coverage for all of the owner’s damages:
“[T]he record here shows that cleaning paint spatter from windows and doors was within the natural and intended scope of work undertaken by the contractor as part of the painting operations on Birch’s [owner] property if in fact such paint spatter occurred.
[T]he scope of the contractor’s operations were intended to include the apartments which were being painted and would, if required, involve cleaning up surfaces which were spattered with paint. There is no genuine issue of material fact that the property damage in this case was to the apartment upon which H&H [painter] was performing its operations, and that it arose out of the insured’s operations within the meaning of (j)5. Additionally, there is no genuine issue of material fact that the underlying claim resulted from the insured’s incorrect work on the glass doors and windows of the apartments within the meaning of exclusion j(6).
Wilshire Insurance Company, 2011 WL at *2.
In this case, it appears that the owner hired the painter directly and that the painter self-performed the work. This is noteworthy because had the owner hired the general contractor and the general contractor hired the painter, or had the painter hired sub-subcontractors to perform all of its work, there could have been certain arguments raised to maximize insurance coverage. These arguments, however, will not be discussed in this specific post. What is also noteworthy is that the Fourth District focused on what fell within the “natural and intended scope of work” of the self-performing painter. Since the damage or activity of cleaning up paint on glass fell within the natural and intended scope of the painter’s work, the Fourth District found that the painter essentially damaged property it was performing work on (the j(5) exclusion) and, thus, required repairs to the painter’s own work (the j(6) exclusion).
It is imperative that when an owner, etc. submits a claim to a contractor or subcontractor’s CGL Policy, the owner consults with a lawyer in furtherance of couching the claim to optimize insurance recovery. Furthermore, and equally important, when a contractor or subcontractor receives a claim, especially a claim for defects or damage, that they too should consult with a lawyer to best present the claim to optimize the insurer protecting their interests and paying proceeds to resolve the claim.
Please contact David Adelstein at email@example.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.