Damage To Your Work Exclusion:
A Common Construction Claim Scenario

Jim Sorte | Vice President, Senior Claims Executive

The following is a common claim scenario for our general contractor and subcontractor clients:

A general contractor hires a subcontractor to complete work on the construction of a building. A few years after the construction is completed, the building owner alleges there are defects in the construction, and makes a claim against the general contractor. The sole focus of the claim is the work of the subcontractor. The allegedly defective work did not cause damage to any other part of the building.

The general contractor’s and subcontractor’s general liability policies will include the “Damage To Your Work” exclusion, which commonly comes into play when there is a claim alleging construction defects. The exclusion reads as follows:

Those policies say “Your Work” includes “work or operations performed by you or on your behalf; …”

So, in the above claim scenario, how does the “Damage To Your Work” exclusion impact the general contractor and subcontractor?

If the general contractor asks the subcontractor to tender the claim to their general liability insurer, the “Damage To Your Work” exclusion is likely to apply because the sole focus of the claim is on defects in the “work or operations performed by (the subcontractor).”

The general contractor, as an additional insured, may then tender the claim to the subcontractor’s general liability insurer. The general contractor may think the exclusion does not apply because “the damaged work or the work out of which the damage arises was performed on (their) behalf by a subcontractor.”

The insuring agreement in the general liability policy says “throughout this policy, the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations, …” The exception to the “Damage To Your Work” exclusion applies only if “the damaged work or the work out of which the damage arises was performed on (the Named Insured’s) behalf by a subcontractor.” In the claim scenario above, and as it applies to the subcontractor’s policy, the work was performed on the Additional Insured’s behalf, and not the Named Insured’s behalf. Therefore, the “Damage To Your Work” exclusion applies to the general contractor as an Additional Insured.

Finally, the general contractor tenders the claim to their own general liability insurer. Since “the damaged work or the work out of which the damage arises was performed on (the Named insured’s) behalf by a subcontractor”, the “Damage To Your Work” exclusion would not apply.

Review jurisdictional case law with your legal professional to understand the impact previous interpretations could have to your business.

The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.

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