When a contractor works on several parts of a structure and a mistake on one part causes damage to other parts they worked on, does their liability insurance cover all the damage, some of it, or none of it?
A court answered this question while interpreting the Commercial General Liability policy’s “that particular part” clause; see ISO Commercial General Liability Coverage Form for background on that policy language.
In the case at issue, the contractor worked on a condominium project and performed exterior water-sealing improperly, permitting large quantities of water to enter the structure through multiple points.
The water damaged other areas of the project on which the contractor had worked, including stud framing and interior drywall. The contractor notified its insurance company, but the company denied coverage because of two policy provisions that exclude coverage for certain types of property damage.
The first exclusion said the insurer did not apply to “property damage to ... that particular part of real property on which (the insured contractor) or any contractors or subcontractors working directly or indirectly on the (insured contractor’s) behalf are performing operations, if the property damage arises out of those operations.”
A second exclusion stated the insurance did not apply to “property damage to ... that particular part of any property that must be restored, repaired or replaced because (the contractor’s) work was incorrectly performed on it.” The insurer’s intent was to avoid covering a contractor’s own defective workmanship.
The court found the first exclusion did not apply because the contractor was not actively performing operations at the time the water damage occurred; the exterior work had been completed and interior work was largely suspended.
As to the second exclusion, the court parsed the wording and concluded it barred coverage only for property that was itself the subject of defective work, not for other parts that were damaged as a result. The court treated the exclusion as addressing three elements: property; that must be restored, repaired or replaced; and because the contractor performed work on it incorrectly.
Because the owner did not claim the contractor performed faulty work on the interior components that were damaged, the court held the exclusion did not apply to those interior losses.
Courts have reached different results depending on the specific policy language and facts, so coverage can be fact-specific; see Understanding Liability Insurance for Contractors for related information.
Contractors and property owners should review policy language carefully and, if needed, talk to an agent about how similar claims have been handled.
Frequently Asked Questions
Does liability insurance ever cover damage caused by a contractor’s own faulty workmanship?
Policies often exclude coverage for the cost to repair or replace the defective work itself, but they may cover resulting damage to other property depending on the exact wording and facts.
What does the “that particular part” exclusion mean?
It generally refers to damage to the specific part of the property where the contractor performed the faulty work, but courts interpret the phrase differently based on policy language and circumstances.
How can a contractor reduce the risk of a denied claim?
Maintain clear documentation of work, follow industry standards, obtain appropriate liability and project-specific insurance, and promptly report incidents to insurers.
What should a property owner do if interior finishes are damaged by exterior defective work?
Document the damage, notify the contractor and insurer, and consult an insurance professional to determine whether the damage is excluded as part of the defective work or covered as resulting damage.