Did You Read Your CGL Policy? A “Your Work” Exclusion Could Mean You’re On Your Own

If you’re a general contractor actively involved in any project, it is safe to assume that you have attempted to protect yourself from paying damages out of pocket in the event there is a problem with the project. However, as is the case with any kind of insurance, there are certain clauses that could leave you on the hook to pay for certain damages arising out of a project. One common clause is the “your work” exclusion.

What Is A “Your Work” Exclusion

Generally speaking, a CGL policy may have language that reads as follows:

This insurance does not apply to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.

Now, I understand that you’re probably thinking, “Wait a minute, isn’t this why I bought insurance, so that in the off chance that my company makes a mistake, I do not go bankrupt!” This is a perfectly logical thought. After all, other licensed professionals such as doctors, lawyers and CPAs purchase insurance for that very reason; to protect themselves when they drop the ball.

The Law Governing “Your Work” Exclusions

Unfortunately, the Texas Supreme Court has stated that although its purpose is to “protect the insured from liability for damages when [its] own defective work or product damages someone else’s property,” the typical CGL policy “cover[s] only ‘insurable risks’ and exclude[s] business risks.” Mid-Continent Cas. Co. v. JHP Development, Inc., 557 F.3d 207, 212 (5th Cir. 2009). The category of so-called “business risk exclusions” at issue in “your work” exclusion cases is the exclusion for faulty workmanship, which excludes coverage for an insured’s defective performance. See id. at 211-12 (citing cases; internal quotation marks omitted).

An Example of a “Your Work” Exclusion at Play

A recent case that evidences how the “your work” exception can come into play is Feaster v. Mid-Continent Casualty Co., No. 2015 WL 164041, (S.D. Tex. Jan. 13, 2015), appeal filed (5th Cir. Feb. 9, 2015). In Feaster, the insured was a home developer who constructed a home. After taking possession, the homeowners begin experiencing problems caused by defective structural work done by the home developer. The homeowners sued the developer and obtained a default judgement of over $300,000.00. The developer assigned its interest and claims against its insurance company to the homeowners who then sued the insurance company arguing that the exclusion was unconscionable, and thus unenforceable under Texas law, because it reduced the insurance companies policies to “phantom polices, not covering anything.” See id.

The Texas court disagreed, explaining that contrary to the developer’s contentions, the “your work” exclusion was neither unconscionable nor unenforceable under Texas law.

What It All Means

Essentially, it means you should read and understand your policy. If your policy includes a “Your Work” exclusion, you might attempt to negotiate some exceptions to the exclusion. It is not uncommon to add a subcontractor exception that would allow coverage if the work is defective due to a subcontractor. Also, whenever possible, get an attorney to review your insurance policies with you.

Nothing here is intended to be legal advice and should not be interpreted as such. Please consult a lawyer for any and all of your legal questions. Please feel free to call us at 832-930-0529 with any issues your company may be having. You can also visit our website www.StephensBell.com

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