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Insurance Law

Understanding The “Your Work” Exclusion In CGL Insurance Policies

By attorney Maggie Finnegan

Most construction contracts require contractors to carry CGL insurance to cover potential liability due to property damage and bodily injury. However, it is important to note that CGL policies often include numerous policy exclusions. A typical exclusion often found in CGL policies is the so-called “your work” exclusion, and may look something like this:

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.

This exclusion means that the CGL policy will not cover damages to a structure built by the insured contractor. Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 266 (1981) [version available to subscribers]. This is not the type of risk typically covered by a CGL policy, because it is considered to be a business risk assumed by the contractor when he signed the contract with the owner. This exclusion will apply, even in cases where the CGL policy also includes coverage for “completed operation hazards” insuring the contractor against bodily injury and property damage arising out of operations and/or warranties occurring after a project has been completed or abandoned. See id. at 265. Where the CGL policy has a “your work” exclusion, property damage claims of third person resulting from an insured contractor’s breach of warranty are only covered if the claimed loss is not to the contractor’s own work or work product. Id. The public policy underlying the “your work” exclusion adduces that because the contractor controls the own quality of his own work, it is fair to hold him liable if the work is faulty. Id. at 267. Moreover, the CGL insurance policy is not intended to act as a performance bond, which guarantees the satisfactory completion of a construction project by a contractor. Id. at 269.

What does this all mean in the context of a construction project? Simply put, if the contractor’s CGL policy includes a “your work” exclusion, any damage to the structure resulting from alleged construction defects would not be covered. However, the CGL policy will cover the risk of injury to people and damage to property other than the completed work itself (assuming no other exclusions apply.) For example, if the siding applied to the exterior of a building falls and injures a pedestrian or an automobile, the CGL policy would likely cover these claims.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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