Kentucky and Ohio Courts Hold That Damages Arising From A Subcontractor’s Defective Work Are Covered Under Prime Contractor’s CGL Insurance Policy With Broad Form Endorsement

Grange Mutual Casualty Co. v. Robert Locker Builder, Inc.; Panzica Constr. Co. v. Ohio Ins. Casualty
1996 Ky. App. LEXIS 8 (Ky. Ct. App., Jan. 19, 1996); 1996 Ohio App. LEXIS 1975 (Ohio Ct. App., May 1

Provision in the standard broad form endorsement to comprehensive general liability insurance policy, which excludes coverage for the “work performed” by the insured general contractor, does not apply to the property damage was caused by a subcontractor’s defective work.

Recently, courts in Kentucky and Ohio (and also Georgia, as noted in the May 1996 Construction Law Review) have held that property damage caused by a subcontractor’s defective work are covered by a general contractor’s comprehensive general liability (“CGL”) insurance policy which contains a broad form endorsement.

In the Kentucky case, Robert Locker Builder, Inc. (“Contractor”) built a house for Mr. and Mrs. Scates (“Owner”) and subcontracted with Dave Smith Excavating (“Subcontractor”) to dig and compact the footings. After the house was completed, certain walls cracked. An investigation revealed that the house had settled as a result of the consolidation of uncompacted fill at the footings. The Contractor notified Grange Mutual Casualty Company (“Insurer”) that it believed the damage was covered under its comprehensive general liability policy, which included a broad form endorsement. The Insurer denied coverage because on the basis that the policy did not cover damage to “work performed” by the Contractor.

Similarly, in the Ohio case, Panzica Construction Co. (“Contractor”) was hired as the general contractor to build several schools in Cleveland. The bulk of the work was performed by subcontractors, with the Contractor performing only some carpentry work. The school district made several claims against the Contractor for property damage to the schools. The Contractor’s Insurers ultimately refused to provide a defense and denied coverage on the basis that coverage was excluded under a provision which states that the insurance does not cover damage “work performed” by the Contractor.

In both cases, the Contractor argued that because the property damage was caused by the defective work of a subcontractor, the exclusion did not apply. The courts agreed with the Contractors and were persuaded by the reasoning of Fireguard Sprinkler Systems v. Scottsdale Ins. Co., 864 F.2d 648 (9th Cir. 1988). The courts noted that although the basic policy excluded coverage for the work performed “by or on behalf of” the named insured, but the broad form endorsement excluded coverage only for the work performed “by” the named insured. The courts interpreted the phrase “or on behalf of” to refer to the work performed by the named insured’s subcontractors. Because the broad form endorsement did not exclude coverage for damage to the work performed “on behalf of the” named insured, the courts held that damage to the work performed by subcontractors was covered under the liability policy.

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