“No Occurrence” CGL Claim Denial Revisited

The CGL policy has several exclusions that apply to faulty workmanship. However, a number of courts have ruled that these exclusions are meaningless because damage to your own work (even if arising from a completed operation and caused by a subcontractor) is not an “occurrence,†so the insuring agreement isn’t even triggered. As a result, new legislation and CGL endorsements are entering the market in response to these rulings.

When this issue first came up several years ago, the Big “I†Virtual University published an article entitled “The ‘No Occurrence’ CGL Claim Denial†which explained why these decisions were bad law and reflected a fundamental misunderstanding of the CGL policy and insurance policies in general. The updated article now includes a downloadable chart of case law from state and federal courts around the country.

In addition, a “revisited†companion article addresses legislation recently passed in Colorado where an “occurrence,†by law, is defined to include faulty workmanship. The article also reviews an endorsement (similar to that being used by several carriers) that attempts to accomplish the same thing. While these endorsements can be very valuable in states with adverse case law, the ones the Virtual University staff has reviewed do restore the same level of coverage found in the unendorsed CGL policy in states that have found that unintended faulty workmanship is an “occurrence.â€

More.

An insured had a riding lawnmower he was moving on a trailer. The vehicle and trailer slid in soft dirt and the trailer came unhooked, throwing the lawnmower off and totaling it. Is the lawnmower covered by the insured’s named perils policy? The adjuster says there is no peril that covers it listed in the named perils policy.

This loss occurred under a policy with perils equivalent to the ISO HO-2 homeowners form. Both the HO-2 named perils form and the HO-3 special causes of loss form cover damage to personal property caused by “vehicles.†The HO-2 has a minor qualification for coverage, but it does not apply here.

The damage to the lawnmower, which is presumably covered property if used in accordance with the policy’s limitations on vehicles used to service the premises, was clearly caused by a vehicle. In fact, if the insured had been mowing his lawn and tipped over into a ditch, there should be coverage since the peril does not say the property itself cannot be the vehicle causing loss.

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A third party wants a lengthy list of additional insureds to be added to a certificate of insurance. After cajoling by the agency, the underwriter issues the AI endorsement, but along with it and more than a dozen other requested endorsements, the underwriter attaches a “cross-liability exclusion†endorsement. What the agent doesn’t realize is the potential coverage problem this form has just created.

Often insureds are required, under the contracts they sign, to provide CGL policies with cross-liability coverage. “Cross-liability†means that one insured can sue another. The ISO CGL policy automatically includes this under the separation of insureds condition. However, some carriers modify this coverage by attaching cross-liability exclusion endorsements.

When this happens, it may gut much of the additional insured endorsement coverage when a claim arises from a CGL insured, such as an employee or someone on a lengthy list added by the additional insured endorsement, suing the additional insured.

If the carrier is willing to add one of those long lists of additional insureds, be vigilant in making sure that cross-liability coverage is intact. For a complete analysis, visit click here.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I†Virtual University, an online learning center for agents and brokers. Do you have coverage questions? If so, log in to the Virtual University at www.iiaba.net/VU and click on the “Experts†link near the top of the page.